Hoteliers are you ready!
From 1st March 2019 the treatment of cancellation fees is changing. Previously where a customer has paid a deposit for a room and then subsequently cancelled, you had been allowed to reclaim the output VAT on this deposit, since there would no longer be a supply of accommodation and therefore this fell outside the scope of VAT.
Unfortunately, under the new rules, you will no longer be able to reclaim the VAT on the deposit as you will not be able to reclassify the receipt from a supply of accommodation to a compensation payment. It will be classified as an “unfulfilled supply”.
VAT can only be reclaimed where you actually refund the customer.
This new change will apply to deposits received before 1st March 2019 but cancelled after this date.