VATSC05824 - Consideration: Payments that are consideration: Deposits and hotel booking charges: Hotel cancellation fees

The reservation terms and conditions may allow customers to cancel a booking without penalty up to an agreed time. After that time they may be charged a fee, described as a cancellation fee. The customer accepts such fees in order to secure the room. As such they are no different from any other commitment to pay in full or in part for the supply and VAT is therefore due on such fees. Hotels may say that these fees compensate them - as they may not be able to let the room at short notice – and so should be outside the scope of VAT. However this does not alter the VAT position as the fee is paid to secure the room so VAT is due even if compensation is one motivation for the charge.