Table of Contents
Is VAT Applicable on Cancellations and No-Shows?
The VAT policy shift implemented by the UK government on March 1, 2019, fundamentally changed how non-refundable deposits are handled for cancelled or missed bookings. This transition has significantly impacted the tax accounting and revenue calculations for short-term rental managers across the country.
While Brexit changed how VAT applies to travel services enjoyed outside the UK, the UK version of TOMS (VAT Notice 709/5) remains active and mandatory for travel services enjoyed within the UK. If your business model involves buying in and reselling accommodation (such as a Rent-to-SA model), you must still apply TOMS to your UK margin. For more information on the specific impact of Brexit on zero-rating non-UK supplies, please refer to the latest updates on the UK government website.
How Have We Dealt with Non-refundable Deposits Up until Now?
As of September 2024, UK vacation rental managers must be aware of the following VAT regulations:
- Non-refundable Deposits: VAT is generally due on non-refundable deposits, even if the guest doesn’t use the services.
- Cancellation Fees: Following HMRC’s Revenue and Customs Brief 2 (2022), most cancellation fees are now considered ‘further consideration’ for a service and are subject to VAT at the same rate as the rental (usually 20%). It is no longer possible to treat these as ‘compensation’ outside the scope of VAT if the underlying rental was a taxable supply.
- No-Show Charges: No-show charges are typically subject to VAT. HMRC’s internal manual (VATSC05825) confirms that no-show charges are consideration for the ‘right to benefit’ from a reservation and must be included in your VAT accounting.
Key Actions:
- Review Policies: Ensure your cancellation and no-show policies are up-to-date and reflect the VAT implications.
- Seek Professional Advice: Consult with a tax professional for guidance tailored to your business.
- Stay Informed: Regularly check HMRC’s website for any changes in VAT regulations.
By understanding and adhering to these guidelines, you can effectively manage VAT on cancellations and no-shows in your UK vacation rental business.
How Should We Handle Cancelled Bookings and No-Shows Moving Forward?
To maintain compliance in 2026, vacation rental managers should move toward automated systems that handle these tax points instantly. Relying on manual updates for every cancellation or no-show increases the risk of penalties and accounting errors.
This significant change has impacted the financial operations of the hospitality industry. To avoid penalties and maintain compliance, review your policies, seek expert advice, and stay updated on VAT changes.
To effectively manage VAT-related obligations and ensure tax compliance, UK vacation rental businesses should understand and follow these guidelines.
How Does VAT on Cancellations and No-Shows Affect My Vacation Rental Business Operations?
To comply with the UK government’s VAT policy, Most noteworthy, if you have not considered this new VAT policy, be sure to take it into account in your business plan.
1. First, 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. You will most probably need to include non-refundable invoices from cancelled bookings in your accounting system or software.
How Can I Minimise the Disruption in My Business?
Each time you face a new VAT policy, you need to review the way you operate your vacation rental business. Your accounting tasks will become more complex because of the HMRC’s new VAT policy on non-refundable deposits. From now on, you will have to include the invoices for those types of bookings in your VAT declaration.
Luckily, there are solutions available. Online accounting software like Xero can streamline the time-consuming process of creating invoices.
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 platform to make your tax life hassle-free.
Zeevou is a user-friendly online platform designed to streamline hospitality management. Automatically generate professional-looking draft invoices for all bookings, even for cancelled or no-show bookings. This can simplify your accounting tasks and help ensure compliance with VAT regulations. Zeevou can also integrate with popular accounting software, making it easier to manage your finances. To learn more about how Zeevou can benefit your vacation rental business, please click here.
