A VAT tribunal ruling lifts the lid on Marriott Rewards

If you are interested in the internal workings of hotel loyalty programmes, you might find this VAT tribunal ruling of interest.

Recently published, it is the result of a (failed) appeal by Whitbread against the VAT treatment of Marriott Rewards redemption nights.  Whitbread was a major operator of Marriott Hotels in the UK until it sold its interests a few years ago.

The case appears – because it is difficult to follow – to revolve around whether a redemption night incurs VAT.  The room is paid for by Marriott Rewards, a US-based company and so not liable for VAT.  The guest, of course, was in the UK at the time but the guest did not pay the bill.

Not only that but the guest does not even know in most cases that Marriott Rewards is paying the hotel – and certainly doesn’t know how much.  Whitbread appears to claim that the Marriott Rewards payment was a marketing payment to them for providing a service to the guest and not a payment for accommodation itself.  I think.

marriott

I won’t go into the details of the case as it gets very complex.  Here is some interesting information from the ruling though about how the programme worked at the time:

….. the hotel was obliged to make a payment, typically between 2% and 4.5% of the “qualifying spend” (calculated in US Dollars) by the Member at that hotel. The precise percentage applied depended on the brand of hotel. The “qualifying spend” included the room rate together with amounts spent on extras such as restaurant and bar bills and an estimate of local taxes payable in respect of the stay.

In order to give hotels an incentive to sign new Members up to the Program a lower fixed rate percentage would be applied where a Member signed up to the Program at the time of the stay (referred to as an “enrolment stay”).

A special fixed charge of $6.50 per 1000 points applied where hotels agreed to make discretionary awards of points (for example as compensation or goodwill gestures).

…… the number of points that a Member would receive depended on a number of factors including whether the Member had “elite level” status. However, whatever the status of the Member, qualifying hotels acting as Sponsor made payments on the basis set out at (1) to (3) above. There was not necessarily any straightforward arithmetic link between the number of points that a Member received in respect of a particular stay and the amount of Sponsor payment that the hotel in question was obliged to make.

Lots, lots more on the inner workings of Marriott Rewards are in the ruling.

Thanks to Paul.

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Comments

  1. I don’t know why I’m reading the ruling when it’s just before 0100 JAX time but maybe it’ll help me fall asleep…

    But then I keep reading ‘Program’ instead of ‘Programme’ and I want to change the spell-check setting on The Hon. Judge Richards’ word processor…

  2. Nicholas Danks says:

    I was once in the food industry where we made Pate for a well known high street food retailer.

    For 11 months of the year we made normal paté and weren’t liable for VAT.

    For Xmas we put them in clay pots and HMRC said we were liable for VAT on the pot – even though we weren’t charging any more.

    It became a test-case!

  3. Mikeact says:

    So,as a non finance guy, do I have to concern myself with my stash of various loyalty points ? Will Avios.com etc start billing me VAT on the cost of a reward ?

    • There no chance of that on flight and hotel rewards abroad as VAT doesn’t apply

    • Alex W says:

      There was an article on TPG recently. US cc signup bonuses are attracting tax

    • Nicholas Danks says:

      Not Directly – It’s an accounting and indirect taxation issue
      Indirectly – It could bring more expense for providers of loyalty schemes and hence degrade benefits in the long run!

  4. I would have thought that Whitbread who do not offer a hotel loyalty scheme, depite owning Premier Inn, would want to disrupt the loyalty market in the UK to make people more brand independent.

    That said they do have a Costa loyalty card.

    • Chris says:

      Not to mention that some form of blind loyalty is the only explanation for their ability to fill Premier Inn’s to the rafters, night after night, at prices that often eclipse nearby Hiltons…

      • the real harry1 says:

        using the word ‘eclipse’ is just silly & emotive

        I bet PI is usually simply cheaper

        can you give the exact address details of PI vs H alternatives so that we can see how much you are exaggerating?

        • Genghis says:

          Some PIs are v reasonably priced. We stayed in a brand new one in Darlo weekend before Xmas, £29 a night. Bargain.

        • Chris says:

          16th March, Croydon. Hilton £65, Premier inn A23, £81.

          That’s the first place I tried but I use the Hilton frequently and have always noticed the premier is dearer.

          I stayed at the Sofitel at Gatwick for a few nights for some meetings recently – it was within a pound of being the same price as the Premier Inn literally next door for two of the three nights.

          It isn ‘t always the case at all, but the fact that PIs can be the same or higher price than full service hotels in a geographically similar spot amazes me – in particular PI’s ability to fill the rooms every night almost without fail.

          It’s not a criticism, it’s impressive, it’s down to so many folks assuming they’re cheaper and not checking. I also use PIs a bunch, some of them are very good for what they are (Silverstone one impressed me a lot the other year in particular)

          • Chris says:

            Often, not always in that first paragraph

          • Truth is that a new PI is likely to be far nicer than a 20 year old full service hotel. So if you don’t need the services ….

      • PI Scarborough is great, best in town!