UK – VAT Treatment of Cancellation and No-show Charges

If the European Court of Justice rules that reservation charges are not subject to VAT, hotels which currently account for VAT on cancellations and no-shows should be entitled to claim a refund.

The French Supreme Court has referred the case of Societe Thermale D'Eugenie-Les-Bains to the European Court of Justice for a preliminary ruling on the VAT treatment of deposits paid by customers to reserve hotel rooms. The Company is arguing that, where the customer does not take up the reservation, the deposit should be treated as compensation for damages incurred in connection with the cancellation. The UK currently treats advance fees retained by businesses upon the cancellation of a reservation as outside the scope of VAT but businesses are required to account for VAT in respect of no-shows.

If the European Court of Justice rules that the reservation charges are not subject to VAT, hotels, and potentially all businesses receiving deposits for guaranteed bookings, which currently account for VAT on cancellations and no-shows, should be entitled to claim a refund of overpaid VAT in the Member States which currently tax these supplies.

Businesses which have accounted for VAT may wish to consider making a protective claim to recover the VAT. This should ensure that claims are maximised under any capping rules (for example, in the UK claims will be capped where the VAT was paid more than three years prior to the date of the claim).

For more information please contact Andrea Clarkson on +44 20 7007 2845, Helen Uttley on +44 20 7007 0817, or your usual Deloitte VAT contact.