News In Focus
No more VAT payments on retained deposits
Hotels and conference organisers who charge a deposit will no longer have to pay VAT on non-refundable advance payments if guests cancel or fail to turn up, thanks to a ruling in the European Court of Justice.
People in the hotel and conference industries can now reclaim previously levied VAT following the ruling, which upheld a French hotel operator’s appeal against an assessment by the French tax authorities.
The court ruled that where a customer cancelled or simply did not take up the booking after making a reservation, no supply was made by the hotel to the customer for VAT purposes, unlike the normal charge for room hire which is subject to VAT at the standard rate.
Mike Gilbert, tax expert at law firm Freeth Cartwright, said: “This does not change the fact that deposits paid by customers who actually use the room are still subject to VAT in the usual way.
“As well as hotels, the ruling also affects conference and exhibition organisers, operators providing hospitality, and providers of serviced accommodation and holiday accommodation.
“It applies where any form of deposit, advance payment or late cancellation fee is charged, and is retained because the customer cancels or fails to show up.”
Mr Gilbert added that a reclaim is allowed for VAT that has been overpaid in the past as a result of treating these amounts as subject to VAT. Claims should be made urgently as there is a three-year time limit.