The quick guide to recovering VAT on Hotels

What is a VAT fee on Hotel bookings?

Hotels charge VAT (Value Added Tax) at a rate of 20% on UK hotel accommodation. However, as a business, you can claim all this tax back if the Hotel booking was done as part of a business trip.

Recovering VAT on hotel accommodation can be difficult, particularly when the hotel is booked through a booking website (e.g. Expedia). This can sometimes mean that you don’t end up getting a VAT invoice/receipt, which means your company can not recover the VAT.  Below we answer some common questions around recovering VAT on hotel accommodation.

Can our company recover VAT on all UK accommodation?

 As long as the hotel is in the UK, and providing the night(s) booked were for business reasons, the answer is yes. However, it’s important to note that nights booked for a customer are not recoverable. 

If your company is registered for VAT in the UK then it can recover this VAT through your UK VAT return (that you file with HMRC) by including it in the amount you put in “input VAT” in Box 4.

However, your company may not be entitled to recover VAT it incurs on UK hotels in all cases. When you book a hotel through certain hotel booking websites the VAT charged by the hotel may not be recoverable. This is because the hotel booking website is operating under the Tour Operators Margin Scheme (TOMS). TOMS is a complex set of rules that effectively mean the customer (your company) is not going to be able to recover the VAT charged by the hotel. The hotel booking website won’t be able to recover this VAT either, so they are likely to end up passing on this cost to your company.

When would our company not be charged VAT on accommodation?

On a UK based hotel? The short answer here is never. It may seem like your company has not been charged VAT on UK hotel accommodation because there is no VAT on the invoice you receive (or you don’t receive an invoice). However, this does not mean that there is no VAT being charged, it just means that the VAT is built into the price while not being included on the invoice. This will be because the booking website is operating under TOMS and is therefore not permitted to include VAT on the invoice although your company is still effectively bearing the 20% VAT cost.

What does our company need to recover the VAT on hotels in the UK?

In order to recover the VAT on the nights you paid for, you will need a valid VAT invoice from the hotel in the name of your company.  This is often difficult to obtain and generally involves the traveller remembering to collect the invoice at check out (a step which is often forgotten by the traveller). If the company fails to collect the invoice from the hotel, then the company is missing out on the opportunity to recover the VAT.

It can often be difficult to work out if the invoice/bill received from the hotel can be used to recover VAT. Click on the link to get a checklist that you can use to check if you can recover the VAT using the invoice/receipt you have received from the hotel.

Can I recover VAT charged in other countries?

Your company is not limited to recovering VAT on just UK hotel accommodation. When employees travel to other countries for business trips, then in a lot of cases the VAT charged on the hotel in that country is recoverable. This means that your company could be reducing the cost of foreign hotel accommodation by between 5% and 25%. VAT is also recoverable on other travel-related expenses (e.g. meals, fuel etc) so your saving is not just limited to recovering the VAT on hotels.

This foreign VAT is not recovered through the company’s UK VAT return (which is filed with HMRC). Instead, it is recovered through a different process called Electronic VAT refund (‘EVR’). This process still involves submitting a claim for the VAT through HMRC, but the process is different to how you would normally file a VAT return. It is also really important to note that there are strict deadlines for recovering this VAT. For a full list, you can refer to the HMRC website for details.