VAT to be chargeable to all non-refundable deposits
11 March 2019
HMRC has confirmed a new policy that VAT remains due on a deposit, even if the customer does not use the goods or services for which it was paid. This came into force with effect from 1 March 2019, cancelling HMRC’s previous interpretation which allowed some non-refundable deposits to be treated as VAT free compensation.
This change will primarily affect the hospitality industry, which will soon be unable to recover VAT charged on cancellation or ‘no show’ charges, eg for hotel room bookings, but any business that retains forfeited deposits for unfulfilled supplies may also be covered by the new policy.