Chartered accountant Grant Thornton has warned that small and medium-sized companies in the UK's tourism and travel industries could be facing a backdated VAT bill running up to £250m.

The warning follows a First Tier Tax Tribunal which last month ruled that Med Hotels had lost its appeal against a £7m VAT bill.

The VAT is due under the Tour Operators Margin Scheme (TOMS), which is an administrative simplification to European Union (EU) VAT law. Without it, traditional tour operators, such as holiday companies, would have to apply the normal VAT rules and potentially have to register for VAT in most EU countries.

According to Grant Thornton, the tribunal decision has major implications for travel companies and consumers alike.

The ruling means that a travel business sourcing hotel rooms from a hotel for an agreed price or 'net rate' and then onward selling to travellers as the agent for the hotel, will either be subject to TOMS themselves or will have a potential VAT liability on commission previously not subject to UK VAT.

Damon Wright, VAT specialist at Grant Thornton, added that if HM Revenue & Customs (HMRC) takes steps to backdate VAT liabilities, it is estimated that the total VAT at stake across the industry could be in excess of £250m.

"Traditional large tour operators are likely to be happy with HMRC's decision," he said.

"Their supplies have always been subject to VAT, so the playing field in this area will now be level. However, tour operators looking to move towards more bespoke agency models may need to rethink this strategy as it would now make them liable for VAT on their services.

"Backdating VAT costs could result in companies that are currently just breaking even, ceasing to trade or being bought by larger businesses. That could lead to reduced choice and increased prices for the consumer."