OTA commission in the UK: what Booking.com really costs you

An online travel agent such as Booking.com or Expedia costs a UK hotel its commission, usually somewhere around 15% of the room rate for an independent. The big agents invoice UK hotels from abroad without UK VAT, so on a £110 room the commission of £16.50 is usually the whole cost, and you keep £93.50, whether or not you are VAT-registered.

That is the whole answer for one booking. The reason it is worth a full post is what it adds up to over a year, and the parts of the arithmetic people tend to miss.

Why does this matter now?

Autumn is when most small hotels set next year’s budget and decide which channels to push. It is also when the online travel agents tend to offer visibility programmes for the following season, each with a higher commission attached. If you do not know what a booking through each channel costs you today, you cannot judge whether paying more for visibility is worth it.

And commission is rarely the line owners look at. It does not arrive as one bill you dread; it arrives as a monthly invoice, or is netted off what the agent pays you, and it quietly becomes the largest cost after wages.

How do you work out the real cost of an OTA booking?

Here is the method, step by step. The OTA commission calculator does the same sums if you would rather not.

1. Find your commission rate. It is in your contract or your extranet’s finance section. Note the base rate and any programme that adds to it.
2. Find what it is charged on. Usually the full amount the guest pays for the room, including the VAT you will owe on the room. Extras sold on arrival are normally outside it.
3. Work out the commission. Room rate × nights × commission rate.
4. Check the invoice for VAT. Booking.com and Expedia bill UK hotels from abroad, without UK VAT. A VAT-registered hotel accounts for it under the reverse charge, a sale and a purchase on the same return, so it nets to nil.
5. Add VAT only if a UK supplier charges it and you cannot reclaim it. Commission × 20%.
6. Subtract from what the guest paid. That is what the booking puts in your account before the cost of servicing the room.
7. Do the same for direct bookings. Card fees, booking engine fees, and a fair share of what you spend on marketing. Direct is cheaper; it is not free.

A worked example: our 24-room hotel on the Welsh coast

Our example hotel has 24 rooms, sells around £110 a night midweek in autumn and £165 on a summer Saturday, and runs at 68% occupancy across the year. About 40% of its bookings come through online travel agents at 15% commission.

One autumn midweek night at £110:

	Amount
Guest pays	£110.00
Commission at 15%	£16.50
UK VAT on the invoice	none (an overseas agent)
Real cost of the booking	£16.50
Hotel keeps	£93.50

If a UK-based supplier charged the same commission with VAT and you could not reclaim it, the cost would be £19.80 and you would keep £90.20.

One summer Saturday at £165, two nights:

The stay is worth £330. Commission at 15% is £49.50, and the hotel keeps £280.50.

Across a year: 24 rooms × 365 nights × 68% is about 5,960 room nights sold. If 40% of them come through agents at an average rate of £125, that is about 2,380 nights and £298,000 of room revenue, on which 15% commission is roughly £44,700.

A VAT-registered hotel accounts for VAT on this commission itself under the reverse charge, so it costs nothing extra. A hotel that is not registered pays no UK VAT on it, though the commission may count towards the VAT registration threshold (£90,000 at the time of writing; check with HMRC).

What one point of commission is worth: on that £298,000, every percentage point is about £2,980 a year. A visibility programme that adds three points costs about £8,900 a year on the bookings you already get, so it has to bring in roughly £10,900 of extra room revenue, which itself pays 18%, just to break even, and more once you remember that some of those guests would have booked anyway.

What should you watch out for?

• Commission on VAT you never keep. For a registered hotel, £110 includes about £18.33 of VAT you pass to HMRC. Commission is usually charged on the full £110, so the effective rate on your net room revenue is higher than the headline. At 15% headline it is 18% of the VAT-exclusive price.
• Programmes that stack. A base rate, a visibility programme and a member discount can sit on the same booking. Read the invoice for one real stay end to end at least once a year.
• Cancellations and no-shows. Check how your agreement treats commission on a booking that cancels, and on a no-show you charged. Your invoices will tell you what actually happened.
• Comparing against zero. A direct booking is not free. If your card fees are 1.5% and you spend £6 of advertising for each direct booking, a £110 direct room nets about £102, not £110. The revenue per available room calculator and the glossary entry on RevPAR help keep the bigger picture in view.
• Treating the agents as the enemy. They fill nights you would not otherwise sell. The question is not whether to pay commission; it is which nights and which guests are worth paying it for.
• Tax advice from a blog. The VAT treatment depends on how and from where you are invoiced. Your accountant should confirm how it works for your business.

How do you lower what OTAs cost without losing the bookings?

Move the guests who already know you to your own website, and let the agents do what they are good at: reaching guests who do not. In practice that means making your website at least as easy to book as the agent’s page, giving a returning guest a reason to book direct (a better room, breakfast, a late checkout), and keeping your rates consistent across channels so nobody finds you cheaper elsewhere. Our glossary entry on rate parity explains why that last point matters.

If you want to see what your own channel mix costs you, alongside what the hotels around you are charging, you can try RatePulse for 14 days with no card.

Before you do anything else, open last month’s commission invoice, pick one booking, and work it through the seven steps above. It takes five minutes and you will know your real number.