VAT on Hotel Rooms in 2024 - What Should You Expect?

VAT rules can be challenging for UK businesses, especially regarding travel and accommodation expenses. A clear grasp of VAT on hotel rooms is beneficial, as this can significantly affect your business outgoings and financial planning. Here, we delve into the VAT rates on hotel accommodation, the process for reclaiming this VAT, and considerations for accommodation abroad.

VAT Rates on Accommodation and Hotel Rooms

The standard VAT rate for hotel rooms in the UK stands at 20%. This rate applies to various types of overnight accommodation, including hotels and boarding houses. Businesses should note that there have been temporary changes, such as during the COVID-19 pandemic when the rate dropped to 5% and later to 12.5%, before returning to 20% in April 2022. Though these shifts primarily targeted leisure travellers, they also altered cost dynamics for businesses. However, companies can reclaim the 20% VAT on accommodations booked solely for business, and potentially enjoy significant savings.

How Can VAT Be Recovered?

VAT on hotel rooms for business purposes is recoverable. When employees stay in hotels for business, the company can reclaim the 20% VAT incurred. This involves including the VAT payment in the company's quarterly or annual VAT return to HMRC. Accurate documentation, such as a VAT invoice, is necessary.

However, bookings made through certain hotel booking websites or corporate travel managers might not always provide VAT details due to the Tour Operators Margin Scheme (TOMS), making VAT non-recoverable in these instances. This underscores the need to obtain proper VAT invoices to ensure you can reclaim any VAT on hotel stays successfully.

Accommodation Abroad

VAT paid on hotel stays and other business expenses abroad can often be reclaimed through the Electronic VAT Refund process. Maintaining and presenting valid VAT receipts is necessary to support any claims for VAT refunds on overseas expenses.

Understanding and managing VAT on hotel rooms, both within the UK and abroad, can lead to effective cost management for business travel. The capacity to reclaim VAT can reduce overall expenses, which underlines the usefulness of staying informed and compliant with current regulations.

Other Business Expenses and VAT

When it comes to business trips, overnight stays often come hand in hand with other expenses such as meals, transport, and parking. Similar to accommodation costs, many of these business expenses also incur a VAT charge, which, under specific conditions, may be reclaimable. The rule of thumb here is that if the expense is made purely for business purposes, then the VAT paid can potentially be reclaimed. This includes costs related to food, drinks, road tolls, parking, car hire, and even fuel.

However, it's worth noting that the ability to reclaim VAT does not extend to all expenses. For instance, expenses incurred by family members accompanying the employee, or by subcontractors, do not qualify for a VAT refund. The same goes for certain types of entertainment or gifts, though the rules here can be more nuanced. It's essential to ensure that all expenses claimed are justified as business-related and that all claims are supported by appropriate documentation.

Additionally, while reclaiming VAT on these expenses can contribute to reduced overall business costs, it's necessary to adhere to HMRC guidelines strictly. Differentiating between personal and business expenses is a must, and all VAT claims must be supported by valid receipts or invoices detailing the VAT paid.

Find bespoke VAT help for your business

For businesses engaging in regular travel or incurring significant accommodation and travel expenses, understanding the VAT rate on hotel rooms, the conditions under which VAT can be reclaimed, and the process for doing so is not just beneficial but can lead to noticeable financial savings. Remember, while you can reclaim VAT on hotel rooms and other business expenses, maintaining proper records and ensuring expenses are strictly business-related are key to a successful claim.

The landscape of VAT can change; hence, staying up-to-date with the latest HMRC guidelines and seeking professional advice when necessary is advisable. Contact The VAT People for tailored guidance, either by calling 0330 8284 232 or by filling out our contact form.