UK Law – Advertisement of VAT-exclusive hotel room prices

27 July 2012 – – The UK Legal Newssite – The Advertising Standards Agency (ASA) has upheld a complaint in relation to advertising hotel room prices exclusive of VAT. Two hotel booking websites listed the prices for rooms in a London hotel. Prices appeared in bold black text with the words “(Excludes VAT)” underneath each one. The complainant challenged whether the prices were misleading on the grounds that they did not include VAT.

Three lines of argument were submitted in response to the complaint. Firstly, as changing the display prices to include VAT would pose technical challenges, the advertiser, in this case InterContinental Hotels Group, felt that it should only have to do so if competitors were also required to make such changes. It is known among hotel owners that displaying VAT-inclusive prices can appear uncompetitive, given that a high proportion of London hotel customers travel from international destinations where it is common to advertise room prices exclusive of value-added and local taxes. Secondly, the majority of branded hotels were owned by third parties and managed by different franchisees. Although franchisees could be directed to display VAT-inclusive prices, this was not directly under the advertiser’s control and would take time to coordinate. Thirdly, the websites transparently stated that the prices were VAT-exclusive at the earliest possible stage of the booking process.

Although the ASA noted these arguments, it referred to the Committee of Advertising Practice UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (CAP Code) rule that VAT-exclusive prices may be only utilised if all those to whom a price claim is addressed do not pay or can recover VAT. The CAP Code sets out the rules on use of marketing communications that advertisers, advertising agencies and media owners must follow. As the ASA understood that the websites were likely to be viewed by consumers required to pay VAT, it concluded that the display of VAT-exclusive prices was misleading and a breach of the CAP Code.

The ASA issued a reminder on its requirements on when price claims should be inclusive or exclusive of VAT in April, following an adjudication relating to advertisement of VAT-exclusive prices for web hosting packages (see our April ASA Snapshot here. Another adjudication in May involved advertisement of VAT-exclusive rates for spa and afternoon tea hotel packages. Despite the advertiser’s submission that most of their customers were business travellers, the ASA reiterated the requirement that VAT-exclusive prices could only be given if all consumers to whom the price claim was addressed paid no VAT or could recover VAT, and that marketing communications that quoted VAT-exclusive prices needed to state prominently the amount or rate of VAT that was payable. Where price claims are addressed to any VAT-paying consumers, hotel owners must take care to ensure that all prices for rooms in UK hotels are advertised inclusive of VAT.

Displaying VAT-exclusive prices has been a long-standing and widespread industry practice. As of the date of publication of this article, the website (a hotel search engine founded by six major hotel companies) is still advertising headline prices that do not include taxes and fees. An ‘estimated total’ is displayed in smaller font below each headline price. However, it is clear that the ASA are adopting a strong stance on enforcement of these requirements. This appears to be part of a wider trend towards ensuring transparency in online pricing, as evidenced by the recent Office of Fair Trading action that resulted in many major airlines agreeing to include debit card surcharges in headline advertised prices.

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