In HMRC v Secret Hotels2 Limited [2014] UKSC 16, the Supreme Court held that a holiday company (SH2) was an agent for a disclosed principal (or “intermediary”), rather than a principal; and was not liable for the £7.1 million of VAT that HMRC had claimed.

  • Secret Hotels2 (SH2) marketed and arranged holiday accommodation through an online website.
  • 94% of its sales of hotel rooms were made to travel agents, with the rest made directly to holiday makers.
  • Hoteliers, who wished their hotels to be marketed by SH2, entered into a written agreement ("the accommodation agreement”) with SH2 containing a number of provisions. The hotels were then advertised on the website.
  • The accommodation agreement was very much in favour of SH2, but this reflected the powerful negotiating position of the large company (backed up, for instance, by
  • Bookings were made using the website and customers paid in full (the” gross sum”) before the holiday. SH2 then paid a lesser sum (the “net sum”) to the hotelier, which was invoiced by the hotelier at the end of the holiday.

HMRC argued that SH2 was a “travel agent” and liable to account for VAT; whereas SH2 claimed that it was solely an “intermediary”, with the difference between the gross sum and net sum being its “commission”. If SH2 were correct, under the “reverse charge mechanism”  it would be foreign hotelier who would account for VAT, rather than SH2.

The court held that it needed to identify the nature of the relationship of SH2, the hotelier and the customer by first considering the effect of the contractual documentation and only then consider whether its conclusion was changed by the commercial facts. It decided that the accommodation agreement (and the surrounding facts) both showed that SH2 was an agent for a disclosed principal.


Supreme Court judgment 

Court of Appeal judgment  in which the tribunal found in favour of HMRC.

UT judgment in which the tribunal found (correctly) in favour of Secret Hotels2.

FTT judgment in which the tribunal found in favour of HMRC.