Bed banks secure ruling in long-running VAT dispute

Bed banks secure ruling in long-running VAT dispute

Tens of millions of pounds could be repaid to five accommodation-only suppliers

Bed banks have secured what could be a decisive final ruling in a long-running battle over whether they were liable to pay VAT on their profits.

A tax tribunal has rejected HM Revenue & Customs’ (HMRC) bid to refer appeals by Alpharooms, Opodo, HotelConnect, Hotels4U and Lowcost Holidays, which went bust in 2016, to the European Court of Justice.

The decision could see tens of millions of pounds being paid back to the five accommodation-only suppliers. HMRC’s only recourse is to appeal within two months.

The firms received backdated VAT bills after former Medhotels was issued with a £7 million bill in 2007.

It is not known how much each firm was left out of pocket, but Alpharooms, now a trading name of Truly Travel, is understood to be expecting £6 million and Lowcost’s administrators £3 million.

In a First-tier Tribunal last November, HMRC claimed the firms were operating as “intermediaries” under European law between 2006 and 2010 – so should have been paying VAT.

Earlier tribunals established the bed banks were “agents” under UK law, and therefore not eligible for VAT under the Tour Operators’ Margin Scheme (Toms).

But HMRC argued a difference in wording between EU and UK law meant they were ‘principals’ under EU law, and liable for VAT.

Alpharooms solicitor Stuart Walsh, head of tax disputes at Pincent Mason, who also represented Medhotels over VAT payments, said: “I think the court has reached the right decision.”

He said although the VAT dispute was not the sole cause of decline among UK bed banks, of which there have been a succession of recent failures and closures, it “certainly did not help”.