Is VAT applicable
on cancellations and no-shows?
UK government put into effect a policy regarding VAT charges for non-refundable deposits of cancelled or no-show bookings on 1st March 2019. This came as a surprise to many short-term rental managers, affecting their accounting and revenue-related calculations. But VAT and Tour Operators’ Margin Scheme (TOMS) complexities should not deter you from tracking the tax rules of the hospitality sector. Besides, Brexit and the UK withdrawal from the EU make TOMS not applicable anymore in the UK thereafter. So one needs to consider all these factors when devising a sensible approach to tax accounting.
How have non-refundable deposits been treated to date?
HMRC used to follow a policy of exempting vacation rental businesses from paying VAT on non-refundable deposits received through cancelled or no-show bookings. This exemption was justified by the fact that there was no direct connection between the non-refundable deposit and the supply of the items and services provided for the guests.
How are canceled bookings and no-shows to be treated going forward?
An article dated January 4th 2019 on the BDO UK website states:
“HMRC has confirmed a new policy that VAT remains due on a deposit, even if the customer does not use the goods or services for which it was paid”.https://www.bdo.co.uk/en-gb/insights/tax/vat-and-indirect-taxes/vat-to-be-chargeable-on-all-non-refundable-deposits
So this means that as a vacation rental manager, in case of
“which will soon be unable to recover VAT charged on cancellation or ‘no show’ charges…”https://www.bdo.co.uk/en-gb/insights/tax/vat-and-indirect-taxes/vat-to-be-chargeable-on-all-non-refundable-deposits
How does VAT on cancellations and no-shows affect my vacation rental business operations?
UK governments implemented the VAT on cancellations and No-shows on 1st March 2019. Most noteworthy, if you have not considered this new VAT policy, be sure to take it into account in your business plan.
1. First of all, review your cancellation and no-show policy, and check its terms and conditions.
2. Also, ask your accountant or VAT counsellor for advice on how to change your accounting procedures accordingly. Most probably you will need to include non-refundable invoices from cancelled bookings in your accounting system or software.
How can I minimise the disruption on my business?
Each time you face a new VAT policy, you need to review the way you operate your vacation rental business. Hence, this time HMRC’s new policy regarding charging VAT for non-refundable deposits of cancelled or no-show bookings is going to add to your accounting workload. From now on, you will have to include the invoices for those types of bookings in your VAT declaration.
Luckily there are solutions available. While drawing up invoices is time-consuming work, accounting software such as Xero is a handy solution to the problem. You find it probably even more advantageous to entrust the operation of your short term rentals. You need an all-in-one channel manager. A channel which integrates with an online accounting program to make your tax life hassle-free.