The On Holiday Group (OHG) is on the brink of closing a decade-long chapter as liquidators prepare to disperse funds to creditors.
Once a significant player in the bed bank sector, OHG’s closure in 2014 was precipitated by complex tax issues that halted its operations.
Liquidation Process Initiated
The liquidator for On Holiday Group (OHG) has taken action to distribute funds to creditors, marking a significant step in concluding the company’s financial matters. Primarily, these creditors include hotel partners who had been awaiting payments for a decade since the company ceased operations in 2014.
This decision follows lengthy engagements with the tax authorities, particularly concerning a VAT dispute. The funds’ distribution is a pivotal moment for those vested in the dissolved bed bank, offering a semblance of resolution after years of contention.
Background of the VAT Dispute
The complexity of the VAT issue revolved around the Tour Operator Margins Scheme (TOMS), a taxation framework that captured OHG’s transactions from 2010. HMRC asserted that bed banks like OHG acted as ‘principals’ rather than mere ‘agents’.
This taxation position forced OHG to remit VAT on the profit margin it achieved. Subsequent legal interpretations challenged HMRC’s stance, specifically referencing prior cases such as Medhotels, which culminated in a Supreme Court verdict in 2014. Yet, the tax demands continued unabated until 2020.
Impact on On Holiday Group
OHG’s commercial viability was severely affected by the VAT demands, which had lasting repercussions on its cash flow.
The chief executive at the time, Steve Endacott, remarked, “The TOMS bill took all our cashflow and eroded our model. The business was destroyed overnight.” This financial strain led to the company’s eventual insolvency.
Endacott further highlighted that the VAT claims not only depleted operational finances but also significantly impeded strategic growth, rendering the business unsustainable in the long term.
Resolution and Repayment
By September 2021, the liquidators secured a tax refund of the disputed £3.6 million, following multiple negotiations. This repayment was processed in two parts: £2.7 million and an additional £1.19 million with interest included.
These funds are now designated for distribution among creditors, although the available amount remains well below the £13 million claimed by creditors. The liquidators have endured further costs, over £1 million, tied to legal and administrative fees.
As Endacott observed, “The outcome is a sorry mess, but the money should now begin to flow to hoteliers,” signalling the end of a protracted financial battle.
Distribution to Creditors
The final amount earmarked for creditors stands at £2.2 million, which is a fraction of the claimed debts.
This sum represents what remains after settling substantial fees to liquidators and tax experts, as well as resolving a claim by the former chief executive. Creditor payments will be proportional to the funds available.
This partial repayment will be distributed among various claimants, albeit insufficient for full compensation, providing an end to a complex fiscal episode.
The Broader Industry Implications
OHG’s saga underscores the critical need for clear regulatory guidelines within the tourism industry, particularly regarding VAT.
The continuous pursuit of VAT by HMRC against similar entities reflects broader implications for operational strategies in the sector. This highlights the importance of navigating complex fiscal landscapes to prevent financial jeopardy.
The situation serves as a cautionary tale for similar businesses, exemplifying the potential fallout of unresolved disputes with tax authorities.
Final Considerations for the Sector
The resolution of OHG’s liquidation is a stark reminder of the paramount importance of financial compliance and strategic foresight. Enterprises in tourism and hospitality must remain vigilant against regulatory shifts.
Businesses are urged to establish robust financial practices and maintain transparency in their fiscal dealings to avert consequential disputes with tax bodies. This story exemplifies the delicate balance required between compliance and commercial viability.
Long-Term Outlook
The OHG case illustrates the potential repercussions of protracted tax disputes on businesses.
Financial resilience and compliance are vital for sustaining operations within challenging regulatory environments. The industry must adapt by enhancing understanding of taxation requirements to avoid similar pitfalls in the future.
After a prolonged financial struggle, the final chapter for OHG may offer limited closure to creditors, with a partial payout on claims.
This case stands as a poignant lesson in the importance of navigating tax regulations proactively.
