Vat on Room Deposits

Vat on ‘No-show’ Room Deposits now Reclaimable

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A European Court ruling could mean a refund of Vat will be due to accommodation providers, where previously a reservation has been cancelled, and the deposit not refunded. Under the ruling the Vat element can now be reclaimed, whereas previously this was disallowed.

HMRC took the view that when a guest does not show, or cancels, but forfeits the deposit in either case, then the guest still had the right to use the room, so as there had been a supply, (albeit not taken up at the option of the guest), therefore the transaction would be subject to Vat.

However the European Court has ruled this interpretation to be incorrect and so deposit income should be treated in the same way as forfeited deposits - not liable to Vat. HMRC has accepted the ruling.

This means that hoteliers can claim rebates of Vat going back over four years, by going back over their books and calculating the sum previously paid. Then making a properly documented claim.

There is a possibility that the ruling may also apply to restaurant booking deposits, where a specific table was not booked and again the charge represents payment under breach of contract. However HMRC are expected to fight this argument, and so restaurateurs at this point in time may find it best to maintain accurate records of forfeited deposits only, for potential future use.

Hoteliers and restaurateurs are recommended to discuss possible claims with their accountant.

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