When you book a stay at a hotel for business use you usually have to put a deposit down at the time of booking, however, plans may change in the meantime or even be cancelled. Some hotels will happily provide a VAT invoice for the amount they have retained however some hotels will not provide this due to the fact VAT is not applicable to the amount. So is this correct for VAT purposes.

Usually, a deposit from a hotel that is taken is not a consideration for a supply unless any part of the supply relating to the deposit has taken place. Providing the booking contract contains terms allowing for cancellation, the retained deposit is outside the scope for VAT and the hotel can adjust the output tax already paid over to HMRC.

Hotels often re-sell the room if a guest cancels or does not check in however if you made a guaranteed booking where the hotel agrees not to release the room and then you cancel after the time or simply fail to show up your deposit and/or a cancellation fee will be applied and subject to VAT.