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News 13.03.14

Despite the Medhotels victory, between 10 and 20 companies in the accommodation-only sector are believed to be disputing up to £100 million of VAT payments with HMRC

Battle not yet over in fight for £100m rebate

Patrick Whyte

AS MANY as 20 travel companies are believed to currently be in dispute with HMRC over VAT

as the sector begins to pick up the pieces following the collapse of the UK’s biggest independent bed bank. Accommodation providers

targeted by HMRC have had to wait until the much-publicised test case involving Medhotels (now Secret Hotels 2) was concluded with some complaining that funds have been withheld on a “guilty until proven innocent basis”. The outcome may have been

broadly good news for the sector but it came too late to save OHG Accommodation Ltd. It remains to be seen whether others will have success in clawing back what they perceive as overpaid VAT. Steve Endacott, chief executive of parent company On Holiday Group,


From gross sums to EU member states: How the case was won

THE MEDHOTELS (Med) case centred on whether the bed bank was acting as a principal or agent. This is crucial, because if a company is acting as an agent for a principal, VAT is paid in the member state where the accommodation is located, for example Spain or Greece. If the agent offers the accommodation in

04 13.03.2014

laid the blame for the demise of his company on HMRC, alleging that the taxman had withheld £4.5 million in disputed Tour Operators’ Margin Scheme (Toms) VAT. Several other companies have also

commented on the potential impact in their most recent financial accounts. Ltd made

reference to a sum of just under £1.2 million, which it says is “being withheld by HMRC” in relation to raised VAT assessments covering a period between March 2009 and February 2011. “The company believes that it

has an entirely differentiated case to that of Secret Hotels 2 and has an appeal lodged with the VAT Tribunal,” the company said. The most recent accounts

for Hotels4U, which was bought by Thomas Cook in 2008, make reference to “an

its own name, VAT is payable in the UK. Five judges unanimously granted

the appeal. In a written judgement, they said: “The contractual documentation makes it clear that… the hotel room is provided by the hotelier to the customer through the agency of Med. The customer pays the gross sum to the hotelier on the basis that the amount by which it exceeds the net sum is to be Med’s commission as agent.” It added: “None of the provisions

of the contractual documentation relied on by HMRC is inconsistent with Med acting as the hotelier’s agent.”

i The timeline

2009: Medhotels, now known as Secret Hotels 2 Ltd, appeals to a tribunal over a £7 million VAT bill. 2010: The Lower Tier Tribunal rules that Medhotels was acting as principal and was liable for VAT under Toms. 2011: The Upper Tier Tribunal rules Medhotels was acting as agent and not liable for VAT. July 2012: HMRC appeals to

the Court of Appeal. December 2012: HMRC’s appeal is upheld, leaving Medhotels to decide whether to go to the Supreme Court. May 2013: Medhotels is granted leave to appeal by the Supreme Court. January 2014: The Supreme Court hears the appeal. March 2014: Supreme Court finds in Medhotels’ favour.

adverse third party sales tax judgement post balance sheet”. The timing would coincide with HMRC’s victory last December in the Court of Appeal. A charge of just over £14 million

was included within its administrative expenses. TTGasked Thomas Cook to clarify

the situation but a spokesperson said: "Our group policy prevents us from commenting publicly on

company tax matters, beyond the information contained in our statutory filings.” TTGunderstands that there could

be between 10 and 20 companies doing battle with HMRC and up to £100 million in disputed VAT. Not all bed banks are embroiled in

a battle with HMRC. Peter Healey, chief executive of Your Hotel Integration (Contracts) Ltd, trading as, said his company didn’t “have that issue”. Healey added he expected to see a

change in how the market operates. “The volume business will

consolidate around the likes of [Tui-owned] Hotelbeds and the specialist business will be in the hands of the smaller and more entrepreneurial businesses,” he said. HMRC said in a statement

following the Medhotels decision:

“The way the court's ruling will apply to other businesses will very much depend on the facts. “We will work closely with other

tax authorities to ensure that VAT is collected on supplies of accommodation in the appropriate member states.” However, when TTGasked for a comment on the case of OHG Accommodation it said it “does not discuss the tax affairs of individual companies".

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