Hot in hotels: current VAT issues - Net vs gross revenue

It has always been important to determine whether a business is operating as agent or principal in respect of a supply, and this is no different for hotels. This was highlighted in the Secret Hotels2 Limited VAT case which reached the Supreme Court. In this case the court ruled that, when arranging hotel accommodation, the online booking agent was acting as an agent and hotels were principals.

As principal, hotels must account for VAT on the full price of the room charged to a customer, rather than the amount actually received from an agent which may have netted off its commission before remitting receipts to a hotel. Accounting for VAT on the net receipts would result in an under declaration of output VAT by the hotel, which in turn may result in penalties and interest charges being levied by HMRC. It is therefore clear that hotel operators should ensure that output VAT is being accounted for on the correct value.

With regards to input VAT, hotels need to ensure that VAT is reclaimed on charges made by a UK booking agent and furthermore they need to ensure that VAT has been accounted for under the reverse charge procedures in respect of booking fees paid to non-UK established booking agents (which may in turn be reclaimed by the hotel, subject to the normal rules).

So if your agent is UK-based, then provided you have a tax invoice showing the VAT on the agent’s commission, the overall VAT position is neutral if you have not previously reclaimed the input VAT (although you might still get penalties for the output VAT). However, if the agent is non-UK, then you will just owe the output VAT to HMRC.

If you think you might be affected by this issue please contact Nick Warner or Shane Risdell to arrange a free 'Risks & Opportunities' meeting.