Cancellations and no-shows
Disclaimer: Whilst every effort has been made to ensure the accuracy of the information contained in the Pink Book of Legislation, we regret that we cannot be responsible for any errors. Read our full disclaimer.
- All accommodation providers are strongly recommended to have a cancellation procedure, in order to avoid any problems with cancellation, curtailment and no-shows.
- If a guest cancels a booking or checks out early, they are in breach of the booking contract they have with you.
- If you cancel a booking that you have already accepted, you are in breach of the booking contract.
Cancellation by guests
Cancellation provisions in the booking conditions
To avoid any problems with cancellation or curtailment (when a guest cuts their stay short), you are strongly recommended to have a cancellation policy. To rely on the procedure you must make this policy clear to guests before you agree the booking, whether on the telephone, by fax, by e-mail or in writing. It is also prudent to get confirmation from the guests that they understand and accept the policy. Finally, your booking conditions and cancellation policy should also be clearly stated on your website.
It is recommended to include a cancellation clause in your standard booking terms and conditions (see the 'Bookings' section). Common cancellation procedures are to either charge guests a cancellation fee that varies according to the amount of notice given of cancellation or to forfeit any deposit provided at the time of booking. It is important to note that any cancellation terms and conditions need to be fair to the customer. For example, demanding fulll payment in advance and having a cancellation policy that would see the customer forfeit the entire payment, regardless of when the cancellation was made, would be deemed to be unfair.
On cancellation or curtailment, you will need to send an invoice to the guest for the amount due. In spring 2019 HMRC changed its guidance on the VAT treatment of deposits when guests cancel a booking or do not arrive (no-shows). The new guidance states that VAT is still chargeable, because the deposit was a payment for the opportunity to use your goods or services. Therefore, you will need to send an invoice to the guest for the amount due inclusive of VAT and include the revenue in your VAT filing.
Please note that VAT only applies to deposits made by the customer. If the customer cancels and you have a separately payable cancellation charge as part of your terms and conditions, this is exclusive of VAT as this is a penalty payment rather than a payment for the opportunity to use your goods and services.
One option that is often given to guests on booking is to take out cancellation insurance. A premium covers any payments they are obliged to make for their accommodation in the event of them having to cancel. A typical policy will cover claims as a consequence of illness or injury to the guest or a member of their family, redundancy, a burglary or fire or jury service.
If you need to comply with the Package Travel Regulations (see the 'Holiday packages' section), you are required to tell the guest about the possibility of taking out cancellation insurance in good time before the start of their holiday.
You can contact a local insurance company or broker for details of how to offer this facility.
Increasingly, accommodation providers are taking deposits or asking for credit card details to reduce their exposure to cancellations.
People tend to expect self-catering owners to ask for a deposit. These establishments often charge a 25% deposit at the time of booking. They also typically request the balance between six to eight weeks in advance of arrival, to avoid being left with gaps they can’t fill.
If you are VAT registered, you need to remember that any deposit is inclusive of VAT. This means that if you withhold a deposit as compensation for a guest cancelling, you must return the VAT component of the deposit as no service has been provided.
If a guest cancels and refuses to pay
If the guest refuses to pay:
- you may be able to charge the amount to their credit or debit card (as explained below) , but if not:
- you will need to consider taking the matter to the small claims court.
Charging a credit card following cancellation or no-show
If you accept a telephone booking made by a credit or debit card and the guest later cancels the booking or fails to turn up, you can charge the guest's card provided that you can show that you have clearly communicated to the guest at the time the booking is made that their account will be charged in the case of a cancellation and the guest has accepted this condition.
One way to do this is to include this condition in your cancellation policy within the booking terms and conditions. Ideally, you should confirm this arrangement in writing or, at least, keep a record of the conversation as proof for the credit card company should the guest later challenge the charge. If the guest refuses to acknowledge having made a booking or claims they were not made aware of your cancellation conditions, and there is no proof to the contrary, banks will tend to refund their money, debiting your account. If you take bookings via the internet, it is a good idea to have a ‘tick-box’ where the guest has to confirm that they have read and accepted the cancellation conditions.
Claiming damages if a guest cancels
If a guest cancels a booking or checks out early, they are in breach of the booking contract they have with you. You may be entitled to claim damages for any losses you have suffered from the cancellation/curtailment. This applies regardless of whether you have cancellation/curtailment procedures as a booking condition.
If you want to make a claim for damages, the procedure is as follows:
- Re-letting the room: You must first make every reasonable effort to minimise your loss by trying to re-let the accommodation. If you re-let the room at the same price, you should have not suffered a loss and so cannot make a claim.
- What amount can I claim? If, despite your efforts, you cannot re-let the accommodation, you will be entitled to claim damages that reflect the losses you have incurred as a result of the cancellation. This is the value of the booking or the part of it for which the accommodation could not be re-let, less the cost of any items that you did not supply. For example, you cannot charge for food, heating, electricity or cleaning as you did not supply these products or services. You are also not able to include any service charge.
Note: there is a general rule of thumb that your loss will be about two-thirds of the value of the booking, but individual cases differ.
- What about the deposit? You may keep the deposit, off-setting it against the amount claimed.
- How soon can I make a claim? You must wait until the period of the booking has elapsed before you can send the guest an invoice for the amount claimed (this should be exclusive of VAT, as no services have been provided).
- What happens if the guest does not pay the claim? If you have any difficulties with a guest refusing to meet your claim, you could consider pursuing the claim through the small claims procedure in the County Court. A small claim can be for any amount up to £10,000. You will have to pay a fee to start your claim which is related to the size of your claim, but this will be added to the money that you are already owed. The appropriate forms and a booklet advising you on how to pursue your claim can be obtained from any County Court.
- What happens if I lose? Be aware that if you lose the case, the guest can seek to recover expenses from you (although not the cost of any legal fees they have paid). These expenses include £90/day for loss of earnings or leave to attend a hearing, plus reasonable travelling expenses for each of the other side and any necessary witnesses they take along to court. You can also be required to pay £750 if the judge gave them permission to get evidence from an expert.
What if a guest does not accept the accommodation?
Should a guest refuse to accept the accommodation booked or any other suitable alternative accommodation that you may offer, then, depending on the reasons given by the guest, you may be able to treat this as a cancellation.
Generally, you will not be able to do this if the guest rejects the accommodation because they booked it on the basis of untrue statements made about it by you or your staff or if the alternative accommodation does not meet the criteria of the guest’s booking (eg. the guest specifically asked for a room with a sea view when booking and the only room available when they arrive overlooks the carpark).
What if I cancel a guest's booking?
If you have to cancel a booking that you have already accepted, you are in breach of contract. If you cannot accommodate a guest who has made a booking, you must find them alternative accommodation of the same or higher standard.
The guest is entitled to claim damages as compensation for any losses incurred in finding alternative comparable accommodation (e.g., extra taxi fares or any extra accommodation costs). However, the guest has a legal duty to keep losses to a minimum, so if your establishment is a bed and breakfast they cannot book into a five star hotel and expect you to pay the difference.
Professional legal advice
If you have any detailed questions on cancellations or any problems with a guest, you are advised to seek professional legal advice.
Your local Trading Standards office
Your local Trading Standards office may be able to offer some guidance, particularly on cancellation terms.