Readers' forum : Hotelier

My client operates a hotel and is about to start a large extension to the property which will increase the size of the main function room used for large dinners functions and weddings. Other work will improve the reception area and the access to it within the business centre where meeting rooms are hired out. The toilets in the public areas will be refurbished and two new bar areas will give the hotel larger internal space.

Currently the room hire income which is exempt from VAT is 5% of the total income. Once the extension is complete I would estimate the VATable income will increase thus reducing the percentage of exempt supplies.

I have two questions. First how do the partial VAT rules apply to such a large project in connection with the capital goods scheme? Second can the hotel reclaim all the VAT...