Handling of VAT on deposits.

As per HMRC – VAT must be declared on deposits at the time/date they are received. https://www.gov.uk/guidance/vat-instalments-deposits-credit-sales#:~:text=You%20must%20declare%20VAT%20on,the%20money%20you%20have%20received.

HMRC – VAT notice 7093

https://www.gov.uk/guidance/hotels-holiday-accommodation-and-vat-notice-7093

The way Hop deals with Deposits –

There is no VAT attached to the payment posted, however when the payment is posted to a Reservation/House Account with a future date – this is then picked up on the daily deposits ledger where the VAT is recorded for all the deposits received on that day.

The Deposits used reversal –

This is when the Deposits are redeemed – the VAT is reversed back out as it is recorded in the daily revenues posted and the reversal is to avoid double-recording.

Example – 

A £500 deposit is taken today for a booking arriving 1^st of July for 5 nights – the VAT (£83.33) is recorded today as due to HMRC – and will be included on the Company’s VAT Return for this period.

On the 1^st of July when the booking arrives and checking in, the deposit is redeemed (£500 goes to Guest Ledger) and every Night Audit charges the £100 rate each night.