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Where Taxpayers and Advisers Meet

VAT threshold, holiday lettings, longer lets etc.

Joined:Thu Dec 03, 2009 5:35 pm
VAT threshold, holiday lettings, longer lets etc.

Postby Incredulum » Mon Nov 23, 2020 2:16 pm

This is a seemingly trickier question than I imagined and I should be most grateful for any assistance you can offer.

An individual has a FHL, all income from which will obviously contribute towards their VAT registration threshold turnover.

The individual also has his own house which is listed on Airbnb and other similar platforms, and Spare Room. It generates rent in the following ways:

1. It has a spare bedroom in which they sometimes have a lodger
2. The spare bedroom sometimes has Airbnb guests.
3. The whole house is sometimes let out to Airbnb guests and when they have such a letting the individual goes and stays with friends or in the FHL if free.
4. Sometimes the whole house is let for two to three months.
5. The whole house might even be let on an AST, i.e. for six months or more.

Which of these income streams contribute towards the test for the VAT threshold?

Many thanks in advance.

Joined:Wed Aug 06, 2008 4:01 pm

Re: VAT threshold, holiday lettings, longer lets etc.

Postby robbob » Mon Nov 23, 2020 6:47 pm

Hello Incredulum - welcome back (i am guessing you never left)

as i could have guessed you have picked a somewhat tricky subject. My post is a bit of a botch job - but here we go nonetheless - as there may be something of use here.

Is it not easiest to work backover and find out whether the particular supply is deemed to be hotel and holiday accommodation and therefore covered by the rules outline din 709/3

Presuming it is then hopefully 709/3 has the full chapter and verse answers to what vat treatment is - albeit you will probably need to fully digest 709/3 to see how you need to acount for vat. By digesting 709/3 fully that should flag up areas where vat is due based on the rules al laid out in 709/3. Long term habitation being a specific area where you may not have to account for output vat.

Being honest presuming anything here with any certainty and being correct in ones assumptions is likely to be harder than you would like.

an example being your initial statement
An individual has a FHL, all income from which will obviously contribute towards their VAT registration threshold turnover.
If we look at 709/3 there is the the following comment reference off season holiday accommodation - so i would say its not necessarily a given that all income is standard rated - if its possible that the circusmtances in 5.6 may be met.
5.6 Off-season letting
If you let your holiday accommodation during the off-season, you should treat your supply as exempt from VAT provided it is let as residential accommodation for more than 28 days and holiday trade in the area is clearly seasonal.
Ref your point 5 - i think there is the possibility of going down the route of providing a formal exempt supply of residential accommodation - none of the specifically listed exclusions (from exemption) must apply if that is done correctly. I think the rules are covered in VAT Act 1994 (VATA 1994) Schedule 9 Group 1

I have somewhat cheated here and taken this viepoint from the following linked article - which suggests this approach is possible.
Q. My client runs a small bed and breakfast (B&B) and a furnished apartment which to date has been let on an Airbnb basis with a daily linen change and cleaning service. Normally they would account for VAT on all of these stays.
In respect of the apartment, then if this is being let longer term the client could enter into a formal tenancy agreement under the Landlord and Tenants Act 1954 and exempt the supply. They should keep a copy of the tenancy agreement or similar evidence to show that the accommodation was occupied for residential purposes only. Any separate cleaning service offered will be standard rated.
Unfortunately unless one is a specific expert on this entire area there is always the possobilty the wrong treatment may be applied as its not even simple to work out where to look for the answer - so it may be paid for specialist answer is the only way to be certain that you have not missed something relevant.

Joined:Thu Dec 03, 2009 5:35 pm

Re: VAT threshold, holiday lettings, longer lets etc.

Postby Incredulum » Wed Nov 25, 2020 8:30 pm

Hi Robbob

Thank you for your post. I've just been asleep (or rather busy). I must say, this is one of the most awkward areas I have come across for quite a while; particularly as it must be a pretty common question now that Airbnb makes it so easy to let out space.

I've read the article you kindly linked to, and asked the internet for further advice on it elsewhere. Sadly the internet points out that a lease of the holiday property within the 1954 Act is only possible when the property is being let to a commercial enterprise (i.e. the company that employs the individual), not an individual. That said there are important and helpful bits in the article, thank you.

It appears to me that:

Sch 9 Part II Group 1 Exempt is the grant of any interest in land, other than: (e) the grant of any interest in, right over or licence to occupy holiday accommodation.

VATLP12100 states "The provision of holiday accommodation is standard rated." The definition in VATLP12200 includes “any accommodation in a building, hut (including a beach hut or chalet), caravan, houseboat, tent or other structure held out as suitable for holiday or leisure use.”
If we look at 709/3 there is the the following comment reference off season holiday accommodation - so i would say its not necessarily a given that all income is standard rated - if its possible that the circusmtances in 5.6 may be met.
Yes, indeed, an excellent point, thank you. I had sort-of reached that point, but then lost sight of it so am very appreciative of your observation re para 5.6. What is interesting is that HMRC's view is that London does not have an off-season. HOWEVER, the Mayor has introduced a rule that restricts letting of property to 90 days per annum where the letting periods are shorter than 90 days. So it seems to me that anything outside the 90 days of short lets should be 'off season' as you patently can't have a FHL in London.

ALTERNATIVELY it just isn't holiday property, as anything being advertised and let for longer than 90 days just isn't held out as being suitable for holiday use.

BUT, it's less helpful with B-and-B-type accommodation. However, is letting a spare room in your own family home really within 709/3 Para 2.1
"Hotels, inns, boarding houses and similar establishments"? "Establishments with similar characteristics to hotels, inns and boarding houses, and any premises, in which furnished sleeping accommodation is provided, that are used by or held out as being suitable for use by visitors or travellers (but not if such use is only occasional).This includes motels, guesthouses, bed and breakfast establishments, private residential clubs, hostels, and serviced flats (other than those for permanent residential use)."
Perhaps your own home just doesn't have any characteristics similar to a hotel. It does seem a little odd that you can get Rent a Room relief, but would be hit by VAT if you are VAT registered - a barrister for instance.

So further questions:

A. Is something being let for 90 days being held out as suitable for holiday use?
B. Is anything in London that is outside the 90 days that is permisable for short lets 'off season' for all that HMRC do not accept that London has an off season?
C. Is letting a spare room in your own family home a "Hotel, inn, boarding house or similar establishment"?

Tentative conclusion with regard to my initial questions:
1. Probably not VATable as it's not a 'similar establishment'
2. Probably not VATable as it's not a 'similar establishment'
3. VATable as holiday accommodation.
4. Not VATable (provided rented for more than 90 days to comply with the Mayor's rules) as out of season.
5. As 4.

Joined:Thu Dec 03, 2009 5:35 pm

Re: VAT threshold, holiday lettings, longer lets etc.

Postby Incredulum » Sun Feb 14, 2021 2:43 pm

This is a particularly tricky question in fact. And it seems odd that I haven't found anything on the topic, given the popularity now of airbnb that allows ad hoc rentals.

There's a lovely 1977 tax case that held that if a property is advertised as holiday accommodation then all income is VATable, so the taxpayer had to suffer VAT.
A married couple owned a house in Highgate comprising three furnished flats. One of the flats was let under a controlled tenancy. The other two were let for short periods. The couple registered with the English Tourist Board and advertised the flats as 'fully furnished holiday accommodation'. They did not account for VAT on the rent from the flats and Customs issued an assessment charging tax on the rents, on the basis that they were excluded from exemption by what is now VATA 1994, Sch 9, Group 1, Item 1(e). The couple appealed, contending that they had only advertised the flats as holiday accommodation in order to ensure that the tenancies would not be controlled, and that at least half of their lettings were not to holidaymakers. The tribunal dismissed their appeal, holding that, as the flats were advertised as holiday accommodation, the rents were excluded from exemption. RW & B Sheppard, [1977] VATTR 272 (VTD 481).

Three flats located above a grocery shop, and advertised as holiday accommodation, were held to be excluded from exemption by what is now VATA 1994, Sch 9, Group 1, Item 1(e) in VWS Morgan, CAR/77/437 (VTD 633).
And a completely contradictory claim whereby the taxpayer was unable to reclaim the VAT despite having advertised it as holiday accommodation.
A company (C) converted a large house at Richmond-on-Thames into ten self-contained furnished flats. It advertised these flats as holiday accommodation for people visiting London. Some of the flats were thus occupied between December 1988 (when the conversion was completed) and February 1989. In February 1989 C received an offer from a US company to enter into a lease of the whole building so that the flats could be used to house the US company's employees. C reclaimed the whole of the input tax incurred on the conversion. Customs issued an assessment to recover part of the tax, considering that it related to the supply of a lease which was exempt from VAT. C appealed, contending that the whole of the conversion work had been undertaken for the purpose of providing holiday accommodation, which was a taxable supply. The tribunal rejected C's contentions, holding that each floor of the building had to be considered separately, and that the input tax should be apportioned between that charged on supplies used for the making of taxable supplies of holiday accommodation, and that charged on supplies used for the supply of the tenancy to the US company. The QB upheld this decision, holding that there was 'no causative nexus between the publication of the advertisement of holiday flats and the letting of the whole building for some quite different purpose'. The company had made a supply which was not a supply of holiday accommodation and thus not excluded from exemption. Furthermore, the relevant provisions of the VAT Regulations were in accordance with Article 17 of the EC Sixth Directive, which permitted the amount of input tax provisionally treated as deductible to be subject to a subsequent adjustment on the basis of actual use. Cooper & Chapman (Builders) Ltd v C & E Commrs, QB 1992, [1993] STC 1.

Trevor S
Joined:Tue Jan 01, 2019 12:37 am

Re: VAT threshold, holiday lettings, longer lets etc.

Postby Trevor S » Sun Feb 14, 2021 11:38 pm

I don't see these decisions as contradictory. The 1977 tribunal agreed that only the two flats marketed as holiday accommodation should be treated as such, which is in line with the later tribunal considering each floor separately.

In the earlier case, it would appear that the owners continued to market the flats as holiday accommodation throughout the period in which they were being let, and did so specifically in order to avoid them being controlled tenancies. The owners were effectively putting forward conflicting views, trying to claim VAT exemption whilst potentially avoiding obligations they may have had as a landlord.

In the later case, the builder would have stopped marketing the properties as holiday accommodation from the point at which they agreed the lease of the whole building. HMCE didn't appear to be querying the VAT treatment of the holiday lettings that had taken place, but rightly argued that the builder couldn't be entitled to a full VAT reclaim on the conversion costs when very little taxable use had actually been made.

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