Travel Industry News - Summer 2007

Welcome to the latest of our regular series of newsletters relevant to our friends, clients and contacts in the travel industry.

Elman Wall are leading accountants to the travel industry and audit and submit more accounts of independent travel businesses to the CAA and ABTA than possibly any other firm in the country.

We present a round up of what we believe to be key and topical issues affecting many tour operators, travel agents and travel organisers.

ATOL and bonding

The Department of Transport and Civil Aviation Authority currently have issued a formal consultation on options for the reform of ATOL bonding at the arrangements and replenishment of the Air Travel Trust Fund.

Three options are given:

Option 1 “Do nothing”

This would maintain existing bonding system whilst no steps are taken to replenish the ATTF.

Option 2 “Replenish ATTF only whilst maintaining bonding”. The clear industry view is that this option would increase costs as ATOL holders would have to pay a levy in addition to ongoing bonding costs.

Option 3 “Introduce an ATOL protection contribution”

This introduces a Contribution to both replenish the ATTF and to replace the existing ATOL bondingarrangements. The initial proposal is that the contribution should be set at £1. It is widely believed that this is the preferred option by the travel industry and there is a distinct possibility that it will be implemented in practice.

The full consultation document can be read in full at www.atol.org.uk.

Any responses to the consultation must be made by 29 June, so if you have a view on ATOL licences, make it known now.

The review of responses will be published by the CAA in August and the decision made in September prior to the bonding renewal date.

Like much of the industry, we are broadly in favour of Option 3 but are concerned as to how the credit card companies will react to the removal of bonding. Barclaycard Business, Streamline and other merchant acquirers are risk adverse by nature and even with CAA bonding have approached many privately owned ATOL holders for risk mitigation, be it by retention of customer monies for a period of time before being passed to the tour operator, cash cover or insurance bonds. The CAA have never given guarantees to the merchant acquirers to reimburse them for their losses in the event of the failure of an ATOL company and the CAA have been very quiet to date about their future relationship with the credit card companies. We understand that discussions have taken place. Surely, there is no benefit for any ATOL holder to have bonding replaced by a passenger contribution which will reduce licence holders costs, only for them to have to incur even more expenditure or tie up capital to satisfy the requirements of their credit card company.

When is a package not a package?

We were delighted to have been asked by the Tourism and Hospitality Group of the Institute of Chartered Accountants in England and Wales to explain the concepts of dynamic packaging to its members.

Like most of the informed travel industry, we have great difficulties in discussing the agent or principal arguments amongst ourselves, let alone explain the chaos our industry finds itself in to a group of accountants that know very little about how it operates. In fact, we were more confused at the end of writing the article than we were before putting pen to paper!

We understand that the DTI is preparing guidance on this complex area which is so sorely needed. We look forward to seeing this guidance published and hopefully having clear rules and a level playing field. Our question is will ABTA challenge the DTI in the same way that they challenged the CAA when they didn’t like the guidance given? In time to come, will ABTA be holding its head up high about commencing the Judicial Review procedure and how will this all end?

As we have said before, don’t lose sight of what an English magistrate might say to an English travel organiser who says that the English claimant should be suing a Greek hotel or Spanish villa owner and not them. If you are acting as an agent, but volunteer to take the risk of a principal, then make sure your liability insurers are fully aware of this and have agreed in writing to cover any claims arising, as often extending cover in this way is problematic.

VAT

ABTA have issued guidance to its members on the VAT treatment of charges made to customers who pay for products by credit or debit card. Following negotiations between ABTA and HM Revenue & Customs, ABTA state that HMRC believe that after two 2006 court decisions, many credit and debit card charges which beforehand had been exempt from VAT should now be subject to VAT at the standard rate of 17.5%. ABTA say that they will continue to ague with HMRC over this but from 1 June, HM Revenue & Customs will expect VAT to be charged in nearly all circumstances for which exemption is currently appropriate and stand alone credit and debit card charges will become standard rated. This is a highly technical area and relies upon narrow and wider interpretations of case law decisions. We would advise you to take the appropriate advice from ourselves, or your VAT advisor. Hopefully, the industry will respond collectively in challenging HMRC’s views.

Whilst on VAT, we would be pleased to hear from any company that has seen HMRC follow up its victory in the International Life Leisure tribunal case. Our understanding is that many bed banks or accommodation only suppliers who say they act as an agent are still not accounting for VAT under TOMS. At the moment, HMRC are not challenging this, which is surprising.

Cash Control Regulations

With effect from 15 June, new EU rules restrict travellers from carrying more than €10,000, as part of the fight against money laundering and the funding of terrorism. Anybody moving in and out of the EU with more than this amount of cash must declare it to Customs. This legislation has not been widely publicised – are your passengers aware of this?

Bank interest rates

Many travel companies are currently holding their highest levels of bank deposits during the year and keenly follow interest rates.

We work closely with Investec Private Bank who offer a gross interest rate of 5.7% on balances between £100,000 and £500,000 and 5.8% on balances greater than £500,000 on their 30 day notice Business Reserve account. Deposits can also be held in $ or € and there is easy facilitation of transfers between currencies. (Subject to terms and conditions.) Please contact us for more details.

Fraud!

Much has been talked about fraud in the last few weeks. We recently attended an ABTA hosted seminar as part of the Travel Weekly Stamp Out Fraud campaign which was well attended. They were very interesting presentations on how travel businesses can spot fraud and protect themselves from both internal and external sources.

There has also been several instances where fraud has been reported in the travel media in recent times. One of these, where Elman Wall has a professional involvement post fraud, had one of the largest number of hits of any story ever published on Travelmole.

A high percentage of fraud occurs from abuse by a rogue senior manager in a position of responsibility. Private companies are notorious for having poor controls and systems over financial functions or placing total trust in one employee.

It is easy to tighten up in these areas – we would be pleased to help.

Many finance departments welcome strong controls, or at the least, the engagement and involvement of the owners, as this protects them from accusation or implication.

Before you say that it couldn’t happen to you, please remember that others have previously said that and it happened to them.

New Client Bulletins on the Elman Wall website

To visit our website, please click here.

We have recently put three new topical Bulletins on our website as follows:

i. A briefing on the new Companies Act, the longest piece of legislation ever to have been passed by Parliament. All provisions are expected to be in place by October 2008. Click here for more information.

ii. A briefing setting out the steps charities should be taking to meet the new legislative requirements of the 2006 Charities Act. Many of our travel clients are also trustees of charities. Click here for more information.

iii. A briefing on National Insurance – an area that many people understand far less than other areas of tax. The briefing covers changes that have recently been made; changes that will be made next year and other topical points on HM Revenue & Customs agenda. Click here for more information.

We have also recently published our Summer 2007 newsletter. For a pdf version, click here.

Elman Wall services

Our core services are providing audit, accounting and tax compliance to tour operators and travel arrangers. We also have very strong skills in tax planning, mitigation, structures and tax investigations, together with wealth management and financial planning.

We have much experience in buying and selling travel businesses, and grooming companies for sale. We provide a lot of business advisory, profit improvement and consultancy to travel businesses, many of whom are not audit clients.

Please contact me on 020 7493 9595 or jonw@elmanwall.co.uk if we can provide you with more information on any of these aspects.

We would also be extremely grateful if you could forward this Travel News email to any friends or business contacts that you think would find it useful, or whom you think we could be of assistance to.

We hope you have a successful summer.