Advice Note: Holiday Cottages and VAT
Your holiday cottage business might offer visitors different ways to pay for their accommodation. These may include advance payments, deposits, cancellation and other charges.
If you are a VAT registered business, it is important to identify the correct tax point, the date you must account for VAT on the letting income. You need to get this right to ensure that the transaction is entered on the correct VAT Return.
- Advance payments
An advance payment is that part, or the whole, of the total selling price that a visitor pays before their holiday begins.
The tax point if you ask for an advance payment is whichever of the following happens first:
- the date you issue a VAT invoice for the advance payment
- the date you receive the advance payment
You include the VAT due on the advance payment on the VAT Return for the period when the tax point occurs.
If there is a remaining balance to pay, a further tax point is created when whichever of the following happens first:
- you issue a VAT invoice for the balance
- you receive payment of the balance
So, you include the VAT due on the balance on the return for when the further tax point occurs.
- Returnable deposits
You may ask your customers to pay a deposit when they agree to hire your holiday cottage.
You must account for VAT in the return period in which you receive the payment.
But remember, you can reclaim any VAT you have accounted for on the deposit in your next return if the deposit is either:
- refunded in full to the visitor when they leave the cottage in good order
- kept by you to compensate you for loss or damage
- Booking fees
Booking fees are usually treated in the same way as a returnable deposit but if you use an agent who arranges a supply on your behalf you must account for VAT on any booking fees you charge even if the booking is not taken up.
- Cancellation charges or forfeit deposits
If you ask your visitor for a deposit but they then don’t turn up, you may in accordance with your advertised terms and conditions, decide to make a cancellation charge or keep the deposit.
You should declare VAT on the cancellation charge or deposit when you receive the payment or when you issue the VAT invoice, whichever happens first. This includes amounts debited from credit cards using details provided at the time of the booking.
If you keep the deposit because your visitor changes their mind about taking the holiday, there is no VAT due because it is compensation rather than for the provision of the holiday accommodation. If you have already declared it on a VAT return, then you need to make an adjustment for it on the next return.
- Retention fees
Any retention fees paid to reserve accommodation (the provision of a guarantee of availability for the future use of the holiday property) are standard-rated.
The reduced value rule in respect of retention fees paid for a period of absence after the first 28 days of a stay in a holiday cottage does not apply.
- Service charges
Any service charges you make are standard-rated.
Any gratuities or tips that are given voluntarily over and above the total charge you receive are outside the scope of VAT. Any compulsory charges are liable to VAT at the same rate as the principal supply.
VAT Notice 709/3 https://www.gov.uk/government/publications/vat-notice-7093-hotels-and-holiday-accommodation/vat-notice-7093-hotels-and-holiday-accommodation#holiday-homes
Further VAT Guidance https://www.gov.uk/guidance/vat-instalments-deposits-credit-sales
William Marshall & Co and the author of this article accept no responsibility for loss occasioned by any person acting or refraining from action as a result of this guidance.