Operate in the Hotels & Tourism Sector – Is your VAT treatment on Retained Deposits from a “no-show” booking correct?
There were changes introduced by HMRC in the Spring of 2019 to the VAT treatment of ‘no-shows’ (in respect of hotel accommodation), which considers supplies that are unfulfilled.
Prior to the change, where an advanced payment or deposit was paid by a customer for a future taxable supply of hotel accommodation, VAT would have been due with the tax point triggered at the time the payment was made. Where this supply was unfulfilled because the customer was a ‘no-show’, the hotel could treat the income as compensation (i.e. outside the scope of VAT) and so if the VAT had already been accounted for it could be subsequently adjusted, so there was a nil VAT effect for the hotel.
With effect from 1st March 2019, the VAT on advanced payments or deposits must still be accounted for at the time of payment, but if the customer does not fulfil their stay, the hotel can no longer adjust the VAT in their return. This clearly creates a potential issue for affected businesses, as any no-shows means that output tax has been accounted for by the hotel (on the advanced payment or deposit) but remains a cost due to the inability to adjust it.
If you would like to discuss how these changes affect your business, please get in touch with a member of the Centurion VAT team at firstname.lastname@example.org