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.
