The liquidator of On Holiday Group (OHG) is preparing to disperse funds to creditors, mainly hotel partners of the former bed bank, 10 years after the company ceased trading.
This follows a decade of wrangling with tax office HMRC over VAT payments totalling £3.6 million under the Tour Operator Margins Scheme (TOMS) taken in 2010 and not repaid until September 2021.
The dispute stemmed from HMRC’s pursuit of TOMS VAT from bed banks which it deemed to be acting as ‘principals’ in the sale of holiday accommodation, rather than as ‘agents’ of the suppliers, and liable to pay VAT on the margin they made.
In OHG’s case, HMRC sought back payment of TOMS VAT on four years’ turnover. This, in turn, followed HMRC’s pursuit of £7 million in TOMS VAT from bed bank Medhotels – later rebranded Secret Hotels and acquired by Thomas Cook.
The Medhotels case went all the way to the Supreme Court where HMRC lost in a ruling in 2014 after differing judgments had been delivered at each stage of the legal process to that point. But the tax office continued to pursue bed banks for TOMS VAT up to March 2020 when it decided against an appeal to the European Court of Justice.
OHG ceased trading 2014, with former chief executive Steve Endacott declaring HMRC “destroyed the business”.
But the OHG liquidators only managed to secure repayment of the VAT in 2021 – in two payments, including some interest, one for £2.7 million and another for almost £1.19 million.
Endacott described the outcome as “a sorry mess” but told Travel Weekly: “The money should now begin to flow to hoteliers.”
He said the TOMS bill “took all our cashflow and eroded our model. The business was destroyed overnight. But it would not have gone bust without the VAT claim.” Endacott added: “HMRC refused to repay the money or even to discuss it until the Medhotels case was resolved.”
OHG reported owing more than £8 million in excess of its assets, including the £3.6 million held by HMRC, when it ceased trading.
Creditors are in line to share about £2.2 million, well below the more than £13 million submitted in claims. This is what is left of the VAT after payment of close to £1 million in fees to the liquidators and tax experts and an undisclosed amount in settlement of a claim by Endacott.