Contact: Sarah McFarlane
Deloitte
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A French case which has been referred to the European Court of Justice (ECJ) could give hotels a substantial VAT windfall. Deposits paid by customers to reserve hotel rooms are generally subject to VAT in the UK if the guest is a no-show. In the case of Societe Thermale D’Eugenie-Les-Bains, the taxpayer argues that the deposits should be treated as compensation if the customer does not take up their reservation and should be VAT free.

Andrea Clarkson, indirect tax director at Deloitte says: “The case potentially affects all businesses who receive deposits for a hotel booking and account for VAT on no-shows. Beyond hotels, this could include car hire companies, restaurants, spas and sports centres.

“If the court rules in favour of the taxpayer, the case may result in VAT repayments to these businesses going back up to three years.

“Any UK businesses which could benefit from this case should consider submitting a protecting claim with HM Revenue and Customs as soon as possible.”

Ends

Notes to editor

The French Supreme Court has recently heard the case of Societe Thermale D’Eugenie-Les-Bains concerning deposits paid by customers to reserve hotel rooms. The company is arguing that the deposits should be treated as compensation if the customer does not take up the reservation. In consideration of the necessity for uniform application within the European Union the Supreme Court has referred the case to the ECJ.

In the UK, following the High Court decision in the Bass plc case [1993 STC 42] most businesses receiving deposits have been treating the monies as outside the scope where there has been prior cancellation but have been required to account for VAT in respect of no-shows.

The Court took the view that where the payment guarantees the reservation and the reservation remains open, the supplier is still making a supply, even where the customer does not attend. However, where the supplier receives prior notice of cancellation and is, therefore, able to offer the room or table to someone else, the customer receives nothing in return for the payment.

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Deloitte & Touche LLP is the UK's fastest growing major professional services firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,246 million in 2003/2004. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

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The information contained in this press release is correct at the time of going to press.