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Long-stay guests
HMRC have changed their interpretation of the law regarding the application of the reduced value rule for long-stay guests in hotels. This change has been incorporated in an update to VAT Notice 709/3: Hotels and Holiday Accommodation, issued recently.
Long-stay guests
HMRC have changed their interpretation of the law regarding the application of the reduced value rule for long-stay guests in hotels. This change has been incorporated in an update to VAT Notice 709/3: Hotels and Holiday Accommodation, issued recently.
The change affects the treatment of supplies of overnight accommodation made by hotels, including inns, boarding houses and similar establishments, where the accommodation is provided to individuals for periods exceeding 28 days. Stays of up to and including 28 days are unaffected by the change and will continue to be subject to VAT at the standard rate.
As the exemption from VAT for supplies of residential accommodation, e.g. houses and flats, does not extend to hotel accommodation, long-term hotel residents could be disadvantaged. In the interests of consistency, a special valuation rule has the effect of treating supplies of accommodation by hotels as VAT-free from the 29th day of a person's stay. This reduced value rule restricts the VAT charge to the part of the payment that is not for accommodation. As a result, where an inclusive charge is made, VAT continues to be due on the part of the charge that relates to meals and drinks, plus other services and facilities provided with the accommodation. As the supply of the accommodation does not become exempt, the hotel is not restricted as to the amount of input tax it can claim as a result of the rule.
It has been HMRC's view that the rule only applies where the supply of the accommodation is made to the individual who will occupy it and that where the supply of the accommodation is to third parties, such as local authorities, VAT is applicable to the total charge regardless of the length of the individual's stay.
Following the recent decision of the tribunal in Afro Caribbean Housing Association, HMRC now accept that the reduced value rule is not limited to situations where the VAT supply is made to the individuals occupying the accommodation. This means, that where, for example, hotels contract with local authorities or other organisations for the provision of accommodation, for example to homeless people or asylum seekers, this can qualify for treatment under the reduced value rule.
The rule is otherwise unchanged. It does not apply, for example, where accommodation is block-booked by companies for periods over 28 days and is used by a number of different individuals for individual periods of less than 28 days. It also does not apply to holiday accommodation.
The change takes effect from 27 September 2006 and there is no requirement to make adjustments in respect of supplies made prior to this date. However, where hotels or other establishments wish to make a claim to HMRC for a repayment of output tax incorrectly paid, they may do so.
Business Brief 15/06 dated 27 September 2006
Gaming machines
HMRC are concerned that, despite their assertion last December 2005 that for the purposes of VAT with regard to gaming machines, it was irrelevant where the element of chance in the game is provided, some businesses failed to license or account for VAT on these machines or have submitted claims requesting repayment of VAT that had been paid. HMRC say that as VAT was correctly payable on these machines, repayments will not be made and, where tax has been underdeclared, assessments will be issued. If a business considers it has been misdirected, it should contact the VAT office.
Business Brief 15/06 dated 27 September 2006
