Navigating VAT in the hospitality sector can feel like trying to decode a secret menu — full of hidden extras, confusing combinations, and the occasional surprise charge. Here, we’re tackling a few of the most common VAT questions and slip-ups we see across the sector, whether it’s muddling through meal deals, figuring out the fine print on service charges, or dealing with split supplies — we’ve got you covered.
Deposits
If you’re in the hospitality game, chances are you’ve asked your accountant around the treatment of deposits.
To clear this up – when a business receives a deposit, it must account for VAT at the time the deposit is received or when a VAT invoice is issued, whichever comes first. This importantly sets the “tax point,” the date when VAT becomes due. If the transaction is cancelled and you refund the deposit, you should adjust the VAT to reflect the refund. However, if there’s no refund, you can’t adjust the VAT, even if you resell the room or reservation to someone else.
In short, any retained deposits or “no show charges” will be subject to VAT. Only refunded deposits are not subject to VAT.
Usually, this is just a timing issue, but not knowing the rules for “no-shows” could lead to under-declaring VAT. If you haven’t been accounting for VAT on deposits correctly, HMRC can assess for under-declared VAT. By ensuring you account for VAT on deposits correctly and voluntarily declaring any under-declared VAT, you can avoid potential penalties.
Bottom line: stay ahead of VAT on deposits, and you’ll avoid any unwanted surprises!
Vouchers
The VAT treatment for vouchers depends on the type of voucher being sold.
Single purpose vouchers
These can only be redeemed for goods or services with the same VAT rate. For example, a voucher for a meal in a restaurant is a single-purpose voucher because it can only be used for standard-rated supplies. The tax point for these vouchers is the date they are sold.
Multi-purpose vouchers
These can be redeemed for goods or services with different VAT rates. For example, a voucher that can be used for a meal in a restaurant or for cold takeaway items is a multi-purpose voucher. The tax point for these vouchers is the date they are redeemed, with VAT based on the items or services purchased.
It might seem like a small detail, but getting the VAT treatment right for vouchers can actually help save money—especially since lots of vouchers never get used.
Group recharges
Another common mistake we see in the sector is with regards to recharges being made between companies within the same corporate group. These recharges could be for staff time, HR and marketing services, or general office costs.
When making these charges between group companies, they are considered taxable supplies for VAT purposes. So, VAT should be charged if the entity making the charge is VAT registered, or this could create a VAT registration requirement if the charges exceed the VAT registration threshold.
In most cases, the entity paying the recharge can fully recover VAT on costs, so there’s no VAT loss to HMRC. However, HMRC still expects the correct VAT treatment for intra-group transactions and will issue penalties and interest for failure to register for VAT or under-declared output VAT.
There are ways to avoid VAT on such recharges, like joint contracts of employment for staff supplies or VAT Group registration. If you’re making recharges within your group and haven’t considered the VAT position, it’s a good idea to seek advice.
Food for thought, need help with VAT advice? Get in touch with Stephen Patey, VAT Director, to ensure you avoid any potential penalties. We’re here to help you navigate these complexities with ease!
