Cancellations and no-shows

Disclaimer: While every effort has been made to ensure the accuracy of the information contained in the Pink Book, we regret that we cannot be responsible for any errors. The Pink Book contains general information about laws applicable to your business. The information is not advice and should not be treated as such. Read our full disclaimer.

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 customers before you agree on the booking, whether on the telephone, by email or in writing. It is also prudent to obtain confirmation from the customer 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 customers 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 full 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 customers cancel a booking or do not arrive (no-shows). The revised 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 that are 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.

Cancellation insurance

One option that is often given to customers 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, fire or jury service.

If you need to comply with the Package Travel and Linked Travel Arrangements Regulations 2018 (see the Holiday packages section), you are required to tell the customer 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, businesses are taking deposits or asking for credit card details to reduce their exposure to cancellations.

Typically, this charge is a 25% deposit at the time of booking, with the balance paid between six to eight weeks in advance of arrival – but this will vary depending on the type of business and the ease of replacing lost custom. For example, accommodation providers will charge a higher deposit and require a greater lead-time for full payment than attractions, due to it being more difficult to replace cancelled bookings.

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 customer 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, but if not, you will need to consider taking the matter to the small claims court.

If you accept a telephone booking made by a credit or debit card and the customer later cancels the booking or fails to turn up, you can charge the customer’s card provided that you can prove you clearly communicated to them when they made the booking that their account would be charged in the case of a cancellation, and that they accepted this condition.

One way to do this is to include the 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 customer later challenge the charge.

If the guest refuses to acknowledge having made a booking or claims that they were not made aware of your cancellation conditions, and there is no proof to the contrary, banks will tend to refund their money and debit your account. If you take bookings online, 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 customer cancels

If a customer cancels a booking or leaves early when staying in accommodation, they are in breach of the booking contract that 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.

Procedure

If you do not have a cancellation policy and want to make a claim for damages, the procedure is as follows:

• Minimising your loss: You must first make every reasonable effort to minimise your loss. This may be by trying to re-let the accommodation or reselling a ticket on which only a deposit was paid. If you re-let the room or resell the ticket 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 or resell the ticket, 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 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 for accommodation businesses 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 customer an invoice for the amount claimed (this should be exclusive of VAT, as no services have been provided).
• What happens if the customer 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 customer can seek to recover expenses from you (although not the cost of any legal fees they have paid). These expenses include £95/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 customer does not accept your product or service?

Should a customer refuse to accept a product or service that they have booked or any other suitable alternative that you may offer, then, depending on the reasons given by the customer, you may be able to treat this as a cancellation.

Generally, you will not be able to do this if the customer rejects the product or service because they booked it on the basis of untrue statements made about it by you or your staff, or if the alternative does not meet the criteria of the customers booking (for example, if the guest specifically asked for a room with a sea view when booking and the only room available when they arrive overlooks the car park, or the customer booked a dinner/dance on the basis that there was a vegetarian option but it was not available). 

What if I cancel a customer’s booking?

If you have to cancel a booking that you have already accepted, you are in breach of contract and must refund the customer. For accommodation businesses, 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 (for example, 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 luxury hotel and expect you to pay the difference.

Note: an issue that came to prominence during the COVID-19 pandemic was the situation where, due to rules introduced by the Government, businesses were required to close or customers were prevented from travelling to certain destinations. The Competition and Markets Authority ruled that if Government legislation prevented a contract from being fulfilled, the customer should be refunded any payment made, minus any amount used for services that had already been provided (for example, the purchase of flowers for a wedding reception). Similarly, if the business was allowed to remain open but was unable to provide the services booked by the customer because of legislation, then the entire booking should be cancelled and any deposit refunded (for example, if a customer booked a room for a party for 100 people but Government rules stated that only 10 people could socialise together).

However, it is important to remember that this does not apply if Government restrictions are only guidance and not legal requirements.