Endacott on Flight Plus: more financial woe for agents
Friday, 11 Apr, 2011
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On Holiday Group CEO Steve Endacott pens an open letter to call on the CAA for clarity over the knock-on effects of Flight Plus:
You begin to wonder if the CAA is playing a clever game by further delaying the release of the consultation paper on the Flight Plus ATOL reform.
As an industry we seem to be slowly accepting that Flight Plus is inevitable and that we just need to make the most of it, until airlines are brought in sometime in the future via the much needed “primary legislation” (witness the ABTA Matters debate)
However, even this defeatist attitude still requires the CAA to deal with two fundamental issues.
1. ATOL should stand in front of credit card reclaims.
How many other Government-run, compulsory insurance policies can duck paying out claims by saying customers who book via credit cards are not covered, as they can reclaim their payment from their credit card company?
If we are going to have an ATOL-based insurance option, then it must be a no-quibble, quick-to-pay-out scheme and not the current mess that takes 6-12 months to pay out whenever we have an industry failure.
Given the uncertainty of what ATOL or ABTA bonds will cover, credit card clearance companies apparently regard travel on a par with porn and something to be avoided. Rather than being attracted by the high volume and high value online credit card transactions, they run scared of travel, charging high clearance fees, delaying payment or even demanding high deposits as guarantees.
If agents are going to pay £2.50 per passenger for ATOL protection then surely they have the right to demand that customers are paid out on failure by ATOL rather than the burden falling on credit card companies and forcing rates up for other agents.
2. HMRC should not levy TOMS VAT on travel agents with an ATOL.
Currently travel agents pay VAT on their commissions but can recover these payments from suppliers. However, historically, if a company holds an ATOL licence then the company is deemed to be the principal and will be liable to pay TOMS VAT on profits.
Assuming an agent creating a dynamic package currently makes 15% commission, this will create an extra TOMS liability of around £15 per booking.
The CAA has given verbal guidance that just because an agent has an ATOL, that agent will not automatically become a principal, in the eyes of the HMRC. However, nobody seems to be willing to put this in writing and it is diametrically opposed to HMRC’s key test of principal status.
This test basically says that companies taking a commercial risk are principals and not agents. As soon as a travel agent gets an ATOL licence, they are responsible for the replacement of failed flights and are hence clearly taking a commercial risk.
It could be argued that taking our supplier failure insurance mitigates this risk, but it’s such a grey area that agents would be mad to sign up for a Flight Plus ATOL without having this 100% clear.
If agents are going to accept that it’s fair for them to pay £2.50 per pax APC fee, pay £5 per pax supplier failure and frequently incur the costs of a bond, it’s simply not reasonable to double this £15 per booking disadvantage to £30 via TOMS VAT.
I wonder how the Office of Fair Trading would look upon an ABTA-brought claim of discriminatory practice against the CAA? Surely it’s not unreasonable to ask why travel agents should bear an extra £30 cost for providing exactly the same holiday as Easyjetholidays.
Dinah
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