Thousands of hotels could benefit from VAT refunds

Hotels which have accounted for VAT on room deposit payments for "no show" reservations could be in line for a VAT refund going back four years.

The opportunity has arisen as a result of HM Revenue & Customs (HMRC) amending its guidance in relation to the VAT liability of room deposit payments for hotels. HMRC now accepts that a deposit that is retained in the event of a contract for a room being cancelled becomes a compensation sum, which is not subject to VAT.

"In practice, this opens the opportunity for large hotel chains down to family owned businesses to make valuable VAT reclaims," said Hannah Dobson, VAT director at Smith & Williamson, the accountancy and financial services group. "The clock is ticking, so hoteliers should check this out. If hotel managers delay they may be literally throwing money away."

Dobson explained that the authorities' revised policy would also apply where a person books for, four days, but only turns up to stay for two. In these circumstances any retained payment for the two days where the person has not turned up would be outside the scope of VAT as a compensation sum to the hotel.

However, she warns that HMRC still take the view that VAT is likely to remain due on deposit payments that relate to a specific type of room being reserved, for example, a penthouse suite or ground floor room, or where a room is held vacant as a "guaranteed booking".

VAT - are you weathering the storm >>

VAT - assessments and appeals >>

By Janet Harmer

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