Have you had your summer holiday yet?

The poor weather has been a boon for travel agents and tour operators as record numbers of British holidaymakers desperately seek foreign sun.

Holiday bargains have been thin on the ground, although a quick glance at Teletext reveals page after page of tempting offers.

As always, the best deals are for late availability holidays. Fly drive holidays to the USA for under £200 appear to be particularly good value and many people would expect to pay by credit card for late bookings, if not for other kinds of bookings as well-

But it is not generally realised that there is a cost for businesses which accept payment by credit card.

The credit card companies impose a hefty commission on outlets and it has become normal for travel agents and others to pass on some of this cost by applying a surcharge.

Set at one per cent or two per cent of the total price, this can easily add £10, £15 or more to the cost of a family holiday.

To add insult to injury, Customs and Excise insisted until recently that VAT was due on this payment.

I have long held the belief that this policy was wrong and my firm has managed to obtain VAT refunds on behalf of travel agents and similar businesses on this item.

Now Customs has admitted the policy bas been wrong all along. From this month, VAT will no longer apply to credit card charges by agents.

However, the situation is not as clear cut as it seems. Business owners with VAT-free income of this kind have to consider the impact on their ability to recover VAT on overheads.

Despite possible complications, well-advised agencies could be in line for significant VAT refunds and improved VAT treatment in the future.

Any business unsure of its position in this respect is recommended to seek advice.

Terry Parkinson is a VAT partner with Haines Watts Chartered Accountants.

Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.