There have been a number of recent VAT changes in the hotel sector. While some of the changes are small, Revenue is generally interested in businesses with high cash intake to non-VAT registered customers as traders may benefit from incorrect practices. However it is not all bad news.
Deposits and cancellation charges: Revenue have revised the VAT treatment of forfeited deposits and cancellation charges. Until recently traders were required to account for VAT on deposits or cancellation charges received. However following a ruling from the European Court of Justice, traders no longer have to account for VAT on deposits or cancellation charges not refunded to customers. Opportunities for a refund of VAT may be present here.
Service charges: With effect from September 1 2008 Revenue has withdrawn its concession that service charges included on bills to customers but passed on in full to staff were not subject to VAT. Such service charges are now subject to VAT at 13.5 per cent in the hands of the hotel operator. Voluntary service charges given by customers which are not included on bills are still considered not to be subject to VAT.
Food and drink: Alcohol, soft drinks, and bottled water are liable to 21.5 per cent VAT. Food and drink including fruit juice and ice cream (but excluding alcohol, soft drinks, and bottled water ) are liable to VAT at 13.5 per cent when supplied with a meal.
Vending machines: Food and drink supplied in vending machines are also liable to VAT at 13.5 per cent even where such products would normally be subject to VAT at 0 per cent. Alcohol, soft drinks, and bottled water still remain at 21.5 per cent VAT even where supplied from a vending machine.
Staff meals: Rules in relation to VAT on staff meals changed in 2005. Where meals are provided free to staff at a cost of less than €37,500 per year, the employer is not allowed to recover VAT on costs. However where the cost of free meals to staff is in excess of €37,500 in any 12 month period, the employer is liable to account for VAT on the total cost of supplying the meals as if such costs were considered turnover from employees. In such circumstances, the employer is also entitled to recover VAT on costs incurred. This will mean that no ultimate VAT liability will arise for the employer due to free meals. Employers supplying free meals at a cost in excess of €37,500 may consider charging a discounted price for such meals to employees. In such cases, VAT is due on the amount of receipts received from employees which should be less than the costs incurred.
Dinner dances: Admission to dinner dances are liable to VAT at 21.5 per cent where both the dinner and the dance are sold as a package. Where payment for the dinner is not a condition of entry into the dance, the VAT rate applying to the dinner can be reduced to 13.5 per cent while the dance charge remains 21.5 per cent.
Location catering: This service is liable to VAT at 13.5 per cent while supplies of alcohol, bottled water, and soft drinks still remain at 21.5 per cent VAT.
Accommodation and conferences: The provision of accommodation and conference facilities is subject to VAT at 13.5 per cent. Where separate charges arise during conferences for food and drink, the normal VAT rates for such products should be used.
Car parking: Where visitors are charged separately for car parking, VAT at 21.5 per cent is due on such receipts.
Laundry services: As part of long standing Revenue concession, where linen is hired out and laundered for the same person under separate contracts, the VAT liability may be broken down into 21.5 per cent and 13.5 per cent for each service.
Credit card commission: Commission earned on credit card transactions is not subject to VAT.
VAT health check: These are some of the issues that Revenue would consider during a VAT review or visit of a hotel. There are other issues of course that could also arise which are not specific to the hotel trade such as timeliness of VAT returns, valid VAT reclaims for general costs, recovery of any large refurbishment costs, VAT rates on goods and services, VAT treatment of products or services received from abroad, etc. If you are unsure about any VAT matters within your business, it could be beneficial to carry out a VAT health check. This would lead to any discrepancies being dealt with in a proactive manner prior to a possible Revenue audit.
Dorothy Gallagher is VAT manager in KPMG Galway and has extensive experience in all areas of VAT, including cross border matters and property VAT. Ms Gallagher can be contacted by e-mail on [email protected] or by telephone on (091 ) 534600.