VATSC42400 - Payments that are consideration: Deposits and hotel booking charges: Hotel cancellation fees
The reservation terms and conditions may allow customers to cancel a booking without penalty up to an agreed time. After that they will be charged a cancellation fee. The cancellation charge is outside the scope of VAT in line with the ECJ ruling in Société thermale d’Eugénie-les-Bains (see VATSC42200).
On the other hand, a cancellation fee for a guaranteed room (see VATSC42300) incurred after the specified deadline will be subject to VAT, as the hotel has undertaken to keep a room available.