A recent decision of the European Court of Justice will come as good news for hard-pressed hoteliers and has led to HM Revenue and Customs issuing new guidance on deposits.

The decision confirms that there is no relationship between a deposit taken for a hotel booking and the supply of a standard-rated service where the deposit is retained because the person making the booking is a ‘no-show’. Accordingly, in such cases there is no need to account for VAT on the deposit.

However, if the deposit is made for a specific room which is therefore kept vacant, the supply remains one on which VAT is due.

Following this ruling, hotel owners can reclaim any VAT overpaid for the past four years only. In addition, hoteliers will want to consider their terms and conditions to ensure they are VAT efficient.