HotelConnect failure blamed on HMRC VAT demand

A trade accommodation provider which ceased trading in 2011 owing more £6.3 million was pushed into insolvency by a VAT demand from HM Revenue & Customs (HMRC) and would not otherwise have failed.

That is according to leading industry accountant Chris Photi, head of travel and leisure at White Hart Associates, who said the company “would not have failed if that money had not been taken”.

Bed bank HotelConnect was wound up in July 2011 after paying up to £1.8 million to settle a demand for VAT under the Tour Operators’ Margin Scheme (Toms). This followed a tribunal ruling in 2010 which found another bed bank, Secret Hotels (formerly Medhotels), liable for £7 million in VAT on the grounds it operated as a principal (or supplier) and not an agent.

More: Creditors of HotelConnect given June 23 deadline for claims

HMRC sought Toms VAT from other bed banks even as the Secret Hotels case progressed through the courts – the ruling being reversed by an Upper Tribunal (High Court), confirmed by the Court of Appeal and finally overturned by the Supreme Court in 2014.

However, HMRC continued to hold VAT from bed banks while it considered an appeal to the European Court of Justice and disputed the applicability of the Supreme Court ruling to other cases. Only in 2020 did HMRC confirm it would not appeal.

It still took until this year for HotelConnect liquidator Antony Batty to negotiate a rebate from HMRC, enabling a payout to unsecured creditors, including trade partners.

Those who have submitted claims can expect a dividend of 50p in £1, which is unusually high, after HMRC repaid £1.2 million.

Photi described the dividend as “unheard of in a travel failure” and said: “This company was not seriously in the red. It would not have failed if that money had not been taken. The company would almost certainly have had the money to continue to operate.”

HotelConnect ceased trading with 6,000 bookings through trade partners and 400 with consumers. However, the liquidator has only received claims worth £2.3 million from 215 creditors. Dividends will only be paid to those who submit claims by the deadline of June 23.

Businesses which may have a claim should contact Antony Batty at antonybatty.com. The cost of the liquidation is put at £700,000.