According to new guidance accepted by HMRC, a deposit that is retained in the event of a room being cancelled is regarded as a compensation sum, and as such is not subject to VAT.
Any hotel business that has paid VAT on withheld room deposits following a guest cancellation, could back date their claim for a refund by four years.
Hannah Dobson, VAT director at accountancy firm Smith & Williamson, said hoteliers should act quickly to claim any undue VAT back.
“In practice, this opens the opportunity for large hotel chains down to family-owned businesses to make valuable VAT reclaims,” she said. “The clock is ticking, so hoteliers should check this out. If hotel managers delay they may be literally throwing money away.”
The revised policy would also apply where a guest reserves a room for a period but only ends up staying for a portion of it. Any sum retained as a result of these circumstances would also not be privy to VAT.
Hoteliers are however warned that HMRC may still apply VAT to deposit payments taken for specific room types, or where a room is held vacant as a guaranteed booking.