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VAT on Hotels and holiday accommodation

HMRC has updated it’s guidance on paying VAT if you provide holiday accommodation, caravans and camping facilities following the introduction of the temporary 5% reduced rate of VAT that will apply between 15 July 2020 and 12 January 2021. The full guidance can be found here:

https://www.gov.uk/guidance/hotels-holiday-accommodation-and-vat-notice-7093

Long stay guests

In specific scenarios there is a special VAT rule whereby if a guest stays in accommodation for over 28 consecutive days it may be possible to reduce the value of the supply for VAT purposes. The accommodation would be subject to VAT at the standard rate up to and including the 28th day, on the 29th day, the value of the supply would be reduced for VAT purposes. The purpose of the 28 day rule is intended as a relief for long-term residents. The rule only applies where the supply is compulsory excluded from exemption.

HMRC deem that at least 20% of the total cost is attributable to services provided as part of the charge for example, reception, and housekeeping etc. (‘facilities’). Therefore, the value of the supply for VAT purposes should be a minimum of 20% of the total cost, equivalent to 4% VAT rate.

Therefore, applying this rule in relation to the temporary VAT rate of 5%, the 20% rule for facilities should apply to the 5% VAT rate rather than 20%, equivalent to a 1% VAT rate.

Here is an example of where we have recently advised a client in this area:

We have recently worked with our client whereby they had a guest who stayed at the premises for a continuous stay of 28 days. Furthermore, due to the current reduced rate of VAT i.e. 5%. During the period to 12 January 2021, they are only required to charge an effective VAT rate of 1% to its client. As it is not a requirement that the saving is passed to their client, they are able to take advantage of the VAT saving.

Disclaimer

The information was correct at time of publishing but may now be out of date.

Tax
Posted by Carolyn Van Hecke
28th September, 2020
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