QUESTION TIME
Chris Reynolds, senior partner in travel consultancy 3Sixty Global, unravels the confusing issue of hotel cancellation charges asked by an anonymous buyer
Chris Reynolds Senior Partner, 3Sixty Global
Chris, senior partner and co-owner of the specialist consultancy company 3SIXTY Global, offers extensive experience in travel programme optimisation, TMC performance, tender, selection and implementation, and travel procurement strategy and negotiation. He has over 20 years' industry experience, including fi ve successful years as travel manager for Siemens. Chris is a member of the Chartered Institute of Purchase & Supply and a former board member of the Institute of Travel & Meetings.
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Q. I have an issue with one of my London hotel suppliers who is insisting on charging me a £30 ‘no-show charge’ on a room booked for £150 plus VAT. I have asked them to remove the charge or declare it as VAT. I refuse to pay more than I would if the guest had stayed. Am I right?
A. There are two questions that travel buyers often find themselves seeking answers to from hotels. Firstly, why do some hotels show rates excluding VAT and others including VAT? And secondly, why and when is VAT due on a cancelled booking? We'll focus on the latter issue. Should there be VAT charges on cancelled bookings? The HMRC rules would appear to be clear but are often interpreted differently by hotels. In fact, hotels within the same chain sometimes interpret them in a different way. The rules on hotel VAT follow
VAT amount should be forfeited in the event of 100 per cent cancellation charges. Unfortunately it is not quite as straight forward if
the booking was a guaranteed room booking where the hotel held the room overnight and removed it from sale to other potential customers. In this scenario the hotel will have been deemed to have supplied the services and as such the cancellation would be subject to VAT. Any cancellation invoices should clearly show the
room rate and the VAT element to ensure that the end user can correctly account for the charges on their VAT return. This second scenario gives rise to a further
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the main VAT principle: VAT shall be charged on any supply of goods or services made in the United Kingdom. Furthermore, Section 8.13.1 of Notice 700 The VAT Guide (May 2012) gives clarity on the VAT treatment for cancellations: • If… you make a cancellation charge when your customer cancels a booking... • Then… no VAT is due on the charge because it is not a payment for a supply. It should be very clear to hotels that if they do not supply the goods, then they have not provided a VATable service, so only the room rate excluding the
“To avoid any future confusion this topic should be raised as part of the RFP process”
complication in that if the hotel has chosen to display the rate excluding VAT, then the cancellation charge may be greater than the rate booked or deposit paid. This can involve the hotel requesting an extra 20 per cent to cancel the booking. There are many examples of
hotels either applying the rules incorrectly, or taking the
opportunity to commute the VAT element to additional compensation, increasing the true cost of the room to the company by 20 per cent. While this is an area that should be covered by legislation, to avoid any possible future confusion this topic should be raised as part of the RFP process and discussed and agreed with your preferred hotels at the negotiation stage. Further advice can be found on the HMRC (www.
hmrc.gov.uk) and British Hospitality Association (
www.bha.org.uk) websites.
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14 THE BUSINESS TRAVEL MAGAZINE
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