The case concerned Alpha International Accommodation Ltd, a travel agent based in the UK specialising in the marketing and supply of holiday accommodation to UK travellers at over 239,000 hotels and apartments in more than 29,000 destinations, including in other member states of the EU. The vast majority of its business is conducted through its website www.alpharooms.com. [Alpha International Accommodation Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2017] UKFTT 0778 TC06185].

Originally the company sold the rooms as a principal, accounting for VAT through the tour operators margin scheme (TOMS), and later as a disclosed agent outside of TOMS. Commercial reasons including reducing risk with accordingly lower insurance premiums and reduced fees to regulatory bodies were behind the change. Additionally competitors had moved to this model resulting in VAT savings for supplies of EU accommodation.

HMRC was informed of the move in 2006, but in 2010 contacted Alpha to say it consider the company to have under-declared VAT in respect of accounting periods from January 2006 to December 2010 inclusive on the basis that the appellant was acting as a ‘travel agent’ within the meaning of article 306 of Council Directive 2006/112/EC and so should be paying under TOMS.

HMRC’s stance was that Alpha fell within these rules as regards supplies made to travellers, who booked hotel accommodation in member states through its website, as it was acting either as a principal or as an agent acting in its own name and not solely as an intermediary. The company argued that these special VAT rules did not apply in relation to the relevant period as it was acting as a disclosed agent or intermediary only.

The FTT outlined the relevant EU law, and also the leading Supreme Court case R & C Commrs v Secret Hotels2 Ltd (formerly Med Hotels Ltd), which found that found that Secret Hotels2 was an intermediary and not an agent acting in its own name and therefore fell outside of TOMS.

The tribunal judge, in outlining the approach to be taken, started with all the relevant contracts, analysing the wording and then considering the economic reality of those agreements, including whether they could be a sham.

The FTT then analysed a sample of agreements reflecting Alpha’s business. These were mainly with hoteliers and were referred to as standard provider terms, of which there were three versions in place during the periods in question. The agreements on the website were referred to as website terms.

With the exception of a few instances, Alpha maintained that it acted as a disclosed agent for all EU supplies either with hotels or travellers and that these contracts, which were binding, confirmed this. The company collected gross payment from customers through its website including local VAT as charged by the hotel provider. It then paid the hotel provider a net sum reflecting its commission fee which was not subject to UK VAT.

HMRC challenged this on the basis that on the balance of probabilities Alpha had failed to show it was an agent as a number of agreements were unsigned and others had no terms and conditions attached. Furthermore some of the contracts were unclear as to whether they fell within English or foreign law.

The FTT found that, on the balance of probabilities, unsigned agreements were contracts, and that all the relevant parties followed the contract as set out by Alpha. The tribunal went on to state that on the balance of probabilities the terms referred to in contracts were those set out in the standard provider terms. Finally the FTT concluded that on the balance of probabilities Alpha acted as a disclosed agent under English law.

The FTT accepted that the onus was on HMRC to plead its case that certain contracts should be considered as falling outside English law and found that it had failed to do so.

The case will now be subject to the result of a later hearing involving hotels at which HMRC will seek to clarify the meaning of the term ‘act solely as intermediaries’ in the context of the relevant EU directive by way of a referral to the European Court of Justice (ECJ).

CCH writer said: ‘This case is a continuation of the slow fall out involving the travel industry following the Supreme Court decision in Secret Hotels2. The appellant’s contractual arrangements reflected the economic circumstances and the understanding of the various parties, despite discrepancies such as unsigned copies of contracts and missing terms and conditions.’

Alpha International Accommodation Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2017] UKFTT 0778 TC06185 is here.

Report by Pat Sweet