A number of hotels have recently encountered problems with over claiming VAT on fees charged by hotel booking websites, resulting in action by H M Revenue & Customs (HMRC) to recover VAT plus penalties and interest.

The problem arises if a hotel uses a booking agent that is based elsewhere in the EU. A common example is Booking.com, which is based in The Netherlands.

The agent takes a booking and passes it on to the hotel, and then raises an invoice for its commission. That invoice will not show VAT but it will show a VAT number, commencing in “NL” in the case of Booking.com. But that is not the only agent, with some based in another country; the key point is that the agent’s VAT number does NOT start with “GB”.

Faced with an apparent VAT invoice, with no VAT shown, it can be very tempting for the hotel to calculate the VAT that is expected, i.e. multiply the invoiced amount by 20/120ths and reclaim this amount.

Reverse charge

The problem is that the invoice does not show VAT for a reason, i.e. none has been charged. Instead, the invoice will carry a statement somewhere – usually at the foot – stating that the reverse charge procedure applies, or some similar wording.

This means that the hotel has the obligation to charge itself UK VAT. So rather than the VAT being 20/120ths of the amount invoiced, it is an additional 20% and the VAT return needs to show the VAT charged in box 1 and the amount reclaimed in box 4 – which nets off to zero.

Where a hotel has calculated VAT as being within the amount invoiced, and reclaimed that at box 4 without showing a corresponding charge at box 1, that VAT reclaim is excessive and is repayable to HMRC, who may go back as much as four years. The amounts involved can be uncomfortably large – tens of thousands of pounds in some cases.

Most of the cases we have seen involve the Dutch-based Booking.com, but other booking agents also operate elsewhere in the EU.

Action points

Where an invoice does not show VAT, it is important not to assume it is a mistake and reclaim 20/120ths. Instead, one should consider why no VAT is shown and consider the following points:

  • Is the supplier VAT registered? If so, there should be a VAT number visible.
  • If there is a VAT number, is it a UK VAT number? If not, is there a statement saying that the reverse charge applies? If so, UK VAT is both due and reclaimable with a net zero benefit to the business.
  • If the VAT number is a UK number, then VAT may not be due on that supply – it may be exempt or zero rated.

If you would like to discuss this issue, please contact a member of our VAT team.

 
 
 
 
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