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In spring 2019 HMRC changed its guidance on the VAT treatment of deposits when guests cancel a booking or do not arrive (no-shows).

The new guidance states that VAT is still chargeable, because the deposit was a payment for the opportunity to use your goods or services.

If you are VAT registered, you need to remember that any deposit is inclusive of VAT.

This means that if you withhold a deposit as compensation for a guest cancelling, you must return the VAT component of the deposit as no service has been provided.

On cancellation or curtailment, you will need to send an invoice to the guest for the amount due.

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Disclaimer: Whilst every effort has been made to ensure the accuracy of the information contained in the Pink Book of Legislation, we regret that we cannot be responsible for any errors. To avoid any problems with cancellation or curtailment (when a guest cuts their stay short), you are strongly recommended to have a cancellation policy.

These establishments often charge a 25% deposit at the time of booking.

They also typically request the balance between six to eight weeks in advance of arrival, to avoid being left with gaps they can’t fill.

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