Very awkward.
Either way, the relationship is soured. If you go, you’ll feel resentful at having been asked to pay, late in the day. If you cancel and don’t go, the connection to them having asked for money, whether that’s spoken as the reason for not going or not, will hang in the air.
I think they made the error not you. It is their error that will mean the friendship is changed. You offered to pay when introducing the idea of a friend coming, and they could easily have accepted or asked for a token gesture or £500 at the time. That would have been fine. But they turned that down and generously offered it to you both for free. To later rescind is where the problem lies.
I don’t think you’ll be going there again. So, it’s up to you and I’d decide based on how much I wanted a holiday. If I really wanted one and to go, I’d pay the £500 and go. You could send it with a pointed note about being happy to pay, but you’d wished they had said earlier etc etc….but probably nothing to be gained by this and a whole lot of awkwardness will exist whilst there. If you’re going to go, pay the money, try to get beyond feeling aggrieved and enjoy their company whilst there.
If you don’t want to go, some of the earlier suggestions of reply are good ones. You can be honest about the cost stopping you going but also friendly and ask them to enjoy the charcuterie and make defence to hoping to see them again. If you send this reply, it will no doubt make them feel quite awkward.
It’s up to you whether you want to make the point to them that they have behaved poorly by turning down your offer of payment when introducing the idea of a friend, then rescinding the fee offer, or to let it go.
The gracious thing here, wouldn’t be to make the money a big thing. Even though they have done the wrong thing by asking for it late in the day, letting it go unspoken as an issue, is the way to avoid them feeling bad….but it depends if you are able to and want to be gracious here, or if you’re annoyed and want to make a point.
It would have been fine for them to ask for money which you’d offered, when you mentioned the friend. It was rather mean to say ‘no’ and later ask it, changing the terms that had been agreed. They probably already have a sense of that. Perhaps they changed their minds because they had been making lots of money through the season and were regretful about not going for another week of normal letting, perhaps they thought twice about an unknown coming for free, or perhaps they had some sense suddenly of you taking advantage (no suggestion if it in your post…but people do sometimes suddenly develop these feelings about others) but regardless, I think it was wrong to change the terms of the offer after it had been made.
If it was me, I think I’d still go. I’d reduce the gift significantly and pay the money as it’s still a good deal. I’d work hard on getting my head round being gracious and enjoying the holiday and just seeing it as a lack of social skill on their part. I’d try not to let it make me feel bitter about it and I’d try really hard not to make pointed remarks about it whilst there. But I probably wouldn’t ask to go again.