What is "holiday accommodation"?

[Imfeelingtaxed]

A builder/developer has bought and is renovating a listed farm and its barns.

The farmhouse will be sold as a dwelling - I've no queries about VAT on that side of things.

However, the barns are being converted into several separate individual holiday lets. Advice has been sought from both HMRC and a tax consultant, but conflicting answers have been given, based around whether the "holiday cottages" are dwellings or not.

One side says that they are dwellings and therefore the sales aren't standard rated, yet the other says they are "holiday accommodation" and the sales are standard rated. Obviously, this not only impacts on output VAT on their sale, but also whether the input VAT on conversion is recoverable or not.

Basically, although the holiday homes are wholly separate, with their own separate facilities, their own direct access outside (no internal linkage), the planning consent is restricted so that they can't be lived in as a "home", i.e. the planning consent is that they're holiday accommodation and includes a restriction as to length of time an occupant can stay in each property.

Neither side are backing down and both are standing by their respective positions, leaving the builder/developer in limbo as they don't want to proceed to put the properties on the market with a potential 17.5% liability hanging around their necks. The only advice has been to take the matter to tribunal and then through the court appeal process, but that's going to take months, if not years, and the builder/developer really needs to get the properties sold sooner rather than later and can't risk not charging VAT if he should have done. As a precaution, he hasn't reclaimed the input VAT on his VAT returns yet.

I wonder if anyone has first hand experience of this matter, which must be relatively common in view of the vast number of barn conversions over recent years. Any links to settled cases, legislation etc., would also be greatly appreciated, as would any recommedations for any VAT consultants who are known to have plenty of experience in this area.

[Eamon McNicholas]

From what you say the building works appears to be standard-rated holiday accommodation, see VAT Act 1994 sc.9 grp.1(e) and note (13).

But with VAT and property it all really turns on the detailed facts and it might be unwise to wing it without specialist advice on the inputs and outputs.

Eamon Mc Nicholas
Tax Barrister

www.EamonMcNicholas.com

[Liability is excluded. The above is not to be taken nor used as specific advice.]