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Amended VAT Rules Affecting the Hospitality Industry

HMRC amended the rules of how to treat VAT on deposits and retained payments where a service is not used, or goods have not been collected. This impacts on the ‘no-shows’ in the hospitality sector, when you have taken a deposit which is non-refundable, but your customer does not show up or cancels their booking.

If you became aware, before 1 March 2019, that a customer was going to cancel their booking, you could treat the deposit as outside the scope of VAT and therefore make an adjustment to recover the VAT originally charged when the deposit was taken. However, this adjustment is not possible for cancellations on or after 1 March 2019 unless the deposit is refunded in which case the VAT can be reduced.

Overall, this change may mean that your VAT bill will be higher going forward if you experience a significant number of cancellations. Take a look at the example below.

A hotel must account for VAT when a payment is made. If the booking was cancelled prior to 1 March, the hotel can make an adjustment and treat VAT charged as outside the scope. If the booking was cancelled on or after 1 March 2019 or the guest does not use the room, the hotel cannot adjust for VAT already paid to HM Revenue & Customs.

For more information or to discuss further, please contact our VAT team.

For further assistance with issues affecting the hospitality industry, please contact our EQ Leisure team.

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