A dividend of 47p in the £1 paid to creditors totalling over £1million in HMRC VAT rebate in liquidation case
Antony Batty & Company declared a dividend to creditors of Hotel Connect Limited – In Liquidation – of 47p in the £1, with a total of £1,080,000 paid to creditors. This outcome was the result of 12 years work by the Firm and followed the recovery of a substantial HMRC VAT rebate during the liquidation.
Background to this HMRC VAT rebate in liquidation case
This case concerns the compulsory liquidation of Hotel Connect, an online hotel room broker with thousands of affected customers and a significant potential VAT rebate held by HMRC. The matter became tied to the Secret Hotels 2 v HMRC case and involved extensive correspondence, Tribunal proceedings and appeals before the outcome was secured. The case demonstrates how complex VAT issues can be in liquidation and the importance of pursuing HMRC where a legitimate rebate is due in order to deliver the best possible outcome for creditors.
Hotel Connect background – Antony Batty takes up the story
Winding up and initial position
“Hotel Connect (‘The Company’) was wound up on 19 September 2011 following the presentation of a petition on 14 July 2011. It traded as an internet-based broker selling hotel rooms on a worldwide basis. The Company block booked hotel rooms from various third-party hotels and then sold these rooms onto retail customers through its website. At the date of the winding up order on 19 September 2011, there were approximately 6,000 unsatisfied retail customers and trade creditors.
I was appointed as Liquidator of the Company by the Secretary of State on 17 January 2013.
Potential VAT rebate identified
At the time of the case handover from The Official Receiver, they stated that there was a potential VAT rebate due from H M Revenue & Customs in the sum of £1,700,000. The realisation of this sum was dependent upon the ruling in a high-profile test Court case, between Secret Hotels 2 Ltd (part of the lastminute.com group) and HMRC.
Prior to the Liquidation, the Company had lodged a claim with HMRC. However, HMRC had advised that it would be held in abeyance until the test case had been concluded.
Impact of the Secret Hotels 2 ‘test-case’
At an initial hearing of the test case the Court ruled in favour of HMRC. The decision was appealed and in 2014 the Supreme Court ruled against HMRC and in favour of Secret Hotels 2 Ltd.
However, HMRC then claimed that the circumstances of the test case differed from those of the other cases, which had been held in abeyance and therefore declined to pay the VAT rebate.
Specialist advice and Tribunal proceedings
Based on the positive conclusion of the test case and very positive legal advice received, we instructed a specialist tax barrister, Joseph Howard to assist in recovering the VAT rebate. We also engaged the Company’s former accountants Saffery Champness, who had been dealing with the rebate claim.
A judgement was made in favour of the Company in the First Tier Tax Tribunal but HMRC advised that they were considering an appeal of the judgement and an application for the transfer of a number of similar issue cases to the European Court of Justice (“ECJ”) and to this end, a two-day hearing was heard in November 2018 to ascertain if the cases should be referred. The decision in the referral hearing was that the case should not be referred to the ECJ. However, HMRC then applied to appeal this decision.
HMRC withdraws its appeal
In May 2020 during the first UK Covid lockdown, HMRC finally decided not to continue with the appeal process. HMRC wrote to the Tribunal on 22 May 2020 to formally withdraw their application. At the same time, HMRC confirmed that they would not be seeking to pursue an action for unjust enrichment against the Company which they had previously indicated that they may do.
Interim payment and finalisation
Subsequent to HMRC taking the above decision, Saffery Champness, my specialist tax advisors and I entered into protracted correspondence with HMRC to agree the amount to be rebated.
In October 2020, we received £1,340,304 from HMRC on an interim basis. We were still in correspondence with HMRC in this matter, as the initial sum paid was calculated and paid after setting off sums due to HMRC as Crown set-off.
It took until early 2025 before we received HMRC’s final Claim in this matter and the balance of the VAT rebate.
Dividend to creditors
On 22 August 2025 I declared a dividend of 47.68p in the £1, totalling over £1 million, following the receipt of 900 creditor claims totalling £2,266,212.”
Pursuit of this sum was only possible due to the professionals involved, including the Liquidator work on a contingent fee basis.
Summary of this HMRC VAT rebate in liquidation case – a strong outcome for creditors
- The liquidation involved a significant potential VAT rebate of £1.7 million.
- The matter became tied to the Secret Hotels 2 litigation, delaying progress for several years.
- Following the Supreme Court ruling and further Tribunal proceedings, HMRC continued to resist payment.
- Specialist tax counsel and the Company’s former accountants were engaged to pursue the claim.
- HMRC eventually withdrew its appeal in 2020 and confirmed it would not pursue unjust enrichment.
- An interim payment of £1.34 million was received in 2020, with the balance finalised in 2025.
- A dividend of 47p in the pound was paid to creditors, totalling £1,080,000.
This case shows how complex VAT issues can be in liquidation and the importance of sustained, specialist work to secure the correct outcome. it also shows how the experience and expertise of Antony Batty and the team, along with excellent support from accountants and legal counsel, were able to deliver the best possible result for creditors.
FAQs about HMRC VAT rebate in liquidation
What is a VAT rebate in liquidation?
A VAT rebate in liquidation arises where HMRC owes VAT back to a company. The Liquidator is responsible for pursuing the rebate and ensuring it is correctly paid for the benefit of creditors.
Why did this VAT rebate take so long to resolve?
The rebate was dependent on the outcome of the Secret Hotels 2 case and subsequent Tribunal proceedings. HMRC also pursued several appeal routes before eventually withdrawing its challenge.
Can HMRC set off tax owed against a VAT rebate?
Yes. HMRC can apply Crown set‑off, which reduces the amount paid to the liquidation by offsetting other tax liabilities owed by the company.
What does this case show directors?
That VAT issues can be complex and long‑running, and that specialist advice is often required. It also shows that significant recoveries are possible where the underlying claim is strong.
What does this case show referrers?
That a Liquidator may need to pursue HMRC over many years, including through Tribunal proceedings, to secure the correct outcome for creditors.
