Unravelling VAT for hospitality

Most hotel and guest house proprietors will be aware that the majority of supplies in the holiday industry are subject to VAT at the standard rate. There are, however, important exceptions.

A deposit taken at the time of a booking is treated as advance payment for the supply, and VAT is therefore due at the time when the payment is received. However, if a prospective guest then cancels a booking and in doing so forfeits a refundable deposit, the VAT which was declared when the deposit was received can be reclaimed from Customs.

A booking fee charged by the hotel is treated as a deposit.

If an extra charge is made for customers who pay by credit card, VAT at the standard rate must be accounted for on the whole transaction. The supply of the goods/services and the merchant fee cannot be treated as two separate transactions for VAT purposes. Note, however, that the Government banned all card surcharges with effect from 13 January 2018 so now you can only charge your guest the actual cost of the merchant fee and no more.

If a cancellation charge is levied on someone who cancels a booking, no VAT is due on that charge as it is considered to be a payment of a compensatory nature: as there has been no supply of services, the payment is outside the scope of VAT.

A charge for ‘non-arrivals’, for example against a confirmed booking, is treated as standard-rated.

Hotels and guest houses offering guests a packed lunch for an additional charge can treat this income as zero-rated. This is as long as the packed lunch is made up of zero-rated cold foodstuffs such as sandwiches etc. and is consumed off the business premises.

Where guests stay for more than four weeks, then VAT is only due on the value of meals, drinks, service charges and facilities. The charge for the room becomes exempt from VAT after the 29th day of stay.

Gift vouchers with a face value supplied for a consideration which carries the right to receive goods or services at a future date are subject to VAT when the voucher is redeemed rather than at the time the voucher is sold. Obviously, it is important to keep adequate records of vouchers issued and redeemed.

H M Revenue and Customs will be looking to see that VAT has been properly accounted for on the different income streams when they get data via the submission of digital tax returns [compulsory for VAT registered businesses from 1 April 2019] so it is worthwhile checking now that you have got it right. Indeed, you could even save yourself some money!

Call our Tourism & Leisure Specialist Cyndy Potter on 01228 534371 for more information.