Home-based travel firm workers win VAT battle

The agents using the VAT Flat Rate Scheme received letters from HM Revenue & Customs last June stating that they had been assessed as ineligible and would have to pay

FRS enabled agents to reclaim VAT on some of their business costs, like office equipment, by paying 10.5% on commission instead of 20%.

HMRC said because Travel Counsellors exerted a “dominant influence” over its agents, they should not have been using FRS.

Agents faced having to repay up to four years’ backdated tax with the typical claim averaging at £6,000, but some agents were presented with much higher demands.

TravelWeekly reports the after a lengthy negotiation involving the agents and Travel Counsellors, HMRC issued letters last month saying it had decided “not to pursue the matter”.

However, a new flat rate of 16.5%, due to come in this April, will prevent small businesses, like self-employed travel counsellors, profiting from the tax break.
The HMRC website states the change will “prevent abuse” and make the scheme fairer.

“This will reduce the incentive for firms and agencies to move employees to self-employment to exploit VAT simplification aimed at small businesses.”

HMRC would not comment on “identifiable cases”, but confirmed: “The 16.5% rate will only apply [to] limited cost [traders].” Agents can self-assess for limited cost status, but risk being deemed ineligible if they fail requirements.

A spokesman for Travel Counsellors said: “In June, a number of Travel Counsellor franchisees were contacted by HMRC in relation to their eligibility for FRS by virtue of the franchisee’s relationship with the company.

“The FRS is intended to simplify VAT record keeping and accounting for small businesses, and had been used by a number of Travel Counsellors for many years.
 
“We pro-actively engaged with HMRC in order to help them understand the Travel Counsellors’ business model and the relationship between individual travel counsellors and the company.
 
“Following our dialogue with HMRC, it has now confirmed that it will not be pursuing a challenge to Travel Counsellors eligibility for the FRS. The well-being of each travel counsellor is extremely important to us and we are very pleased to have helped the Travel Counsellors secure this outcome.”