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Exciting VAT Savings Opportunity for Serviced Accommodation Providers

Exciting VAT Savings Opportunity for Serviced Accommodation Providers

VAT

The decision in the case of SONDER EUROPE LIMITED opens up a potential opportunity for businesses that provide short-term serviced lets to travellers to:

  • make a back claim for VAT that may have been overdeclared for the last four years
  • and also in some circumstances deregister for and cease charging VAT even if their total turnover exceeds £85,000 on a rolling 12 months basis.

This is a great opportunity for the sector as the possible use of the VAT tour operator’s margin scheme (“TOMS”) to account for VAT on the provision of short-term stays in serviced apartments has been the subject of much debate. 

TOMS can be beneficial as it allows operators to account for VAT on their profit margin and not the total amount charged to the traveller thus creating a VAT saving for the operator.

HMRC’s view was that buying an accommodation and supplying it along with furniture or changing the length of the term of the lease from a long-term lease to the accommodation provider to a short-term let to the traveller was a “material alteration” to the supply. This was enough to block TOMS from being used as normal VAT accounting rules apply where items are supplied that have undergone a material alteration.

The position has now potentially been clarified following the release today of the tribunal decision in the case of SONDER EUROPE LIMITED and an earlier decision for The Square Ltd.

The decisions support a view that TOMS can be used to account for VAT on stays at serviced accommodation in properties that have been leased from property owners (even if the property is furnished by the provider and/or the length of the lease is different to the length of stay sold by the accommodation provider).

It is possible that HMRC may contest the decision given the amount of VAT at stake and any VAT claims will need to take into account the complex TOMS calculation that must be used to calculate the amount of VAT to be claimed.

If this decision is likely to impact on you or your clients please contact your usual advisor or call and ask to speak to one of our VAT advisors at The VAT People Limited.

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