Martyne Pearson, Senior VAT Manager

There has been much noise in the travel press this week around the Olympics and sports fans who have booked packages for tickets only. It has been reported that sports fans who have bought tickets and hotel packages may be trying to offload the hotel portion. Some packages include hotel accommodation which is located miles away from the event venue. Packages have in some cases been purchased by individuals who live right next to the venue.

With regard to the above, it is expected that there will be a number of no-shows where the hotel room element will not be taken up by the individual.

The VAT treatment from no-show income has in the past been subject to debate. Initially, it was thought that the income generated from the sale of UK hotel accommodation should be subject to VAT at the standard rate (either on the full selling price or on the margin if the supply fell within the Tour Operators Margin Scheme). This was on the basis that as the hotel room was being held for the individual, a supply of services had been made in return for the payment. This was the case even though the hotel room had not been used.

It is now accepted by HM Revenue & Customs that income generated from a non-show (i.e. where the customer does not take up the hotel room) can in certain circumstances be treated as outside the scope of UK VAT. This is on the basis that it is industry practice for hoteliers to over book capacity so hotel rooms are often not allocated until arrival. As there has been no service provided to the individual, there can be no taxable supply for VAT purposes. The payment received will be treated as a form of compensation and will be outside the scope of UK VAT.

The above is the treatment that will often be applied by the initial hotelier who supplies the room directly to the customer. The position with regard to supplies made by travel agents and tour operators accounting for VAT under TOMS is likely to be different. These businesses are likely to continue to incur the cost of the hotel room from the hotelier (as in some cases inventory is purchased in advance of the sale being made). The question therefore is whether these businesses will be able to make an adjustment in their TOMS calculation in respect of the provision of hotel accommodation that is effectively not taken up?

With regard to the above, we would recommend that any business selling hotel accommodation reviews its position and seeks advice if they are not sure how they should be accounting for VAT on these receipts.

If you would like more information or to discuss your VAT position in more detail please contact Martyne Pearson on 01962 735350.