VQOTW: Hotel Deposits

My client frequently has to stay in hotels for business. The hotel takes a deposit at the time of booking with the balance of the cost paid over when the stay takes place. Sometimes my client’s plans, or those of his customer, change and he cancels the booking and the hotel keeps the deposit paid. Some hotels send a VAT invoice covering the amount of the deposit they retain after the cancellation and some say that they cannot issue a VAT invoice because VAT is not applicable to the amount they have retained. Which is correct for VAT purposes?

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A. Normally a deposit retained by the hotel if the guest cancels their booking ceases to be a consideration for a supply unless any part of the supply relating to the deposit has taken place.  Provided the booking contract contains terms allowing for cancellation, the retained deposit is outside the scope of VAT and the hotel can adjust the output tax already paid over to HMRC.

However, hotels often re-sell rooms if a guest has not checked in by a certain time. If your client were to make a ‘guaranteed booking’ where the hotel agreed not to release the room, and then either cancel after that time or simply fail to show up, any deposit retained and any cancellation fee charged would be a consideration for keeping that room available and subject to VAT.


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If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.

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Hilary is a qualified chartered accountant and member of the tax faculty.  Before joining Croner Taxwise she qualified with a national accountancy firm and after some time in practice worked as Group Finance Director of an SME private group with a wide range of activities. Hilary also undertakes a volunteer role as a trustee of a charity with some complex VAT issues.

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