News & Events
Why the nature of your holiday lettings business is important for tax purposes
The summer holidays may now only be a memory, but two recent cases show that the taxation of holiday accommodation is never far from HMRC’s mind, says Fiona Phillips, partner
In a Stamp Duty Land Tax (SDLT) case, non-residential rates of SDLT were used in the purchase of a large property by Mrs Hurst. She argued that the property was used as a “hotel, inn or similar establishment” which would be subject to lower rates of SDLT. The SDLT at stake was £47,750.
At the time of the purchase the sellers were offering bed and breakfast accommodation in the property which included a commercial kitchen, although they had not registered for business rates.
HMRC argued that there was insufficient commercial enterprise for the property to be a hotel or inn. The arguments used to support this were the lack of evidence of business infrastructure; business rates were not paid; only one suite of rooms were let in 2020 (although Covid was the issue here); and in contrast to hotels and inns, food was provided to guests only.
However, Mrs Hurst won the case with her convincing arguments that the standard hotel amenities , such as daily cleaning, were provided; there was a commercial kitchen; and there were domain names for the property enabling internet search.
In another case, which this time focused on VAT, the nature of the lettings was also considered. The case concerned serviced apartments and shows the need to consider what supply is being made – is it an exempt supply or a standard rated supply?
Realreed Limited owned a large building in central London which comprised 656 self-contained apartments, of which 421 were let on long leases (exempt supplies). The remaining 235 apartments were let on short term basis (on average, for a fortnight). Realreed also treated these as exempt supplies for VAT purposes.
It is important to note that Realreed had treated the supply of serviced accommodation as VAT exempt for almost 30 years before it was queried by HMRC.
HMRC contended that the letting of the 235 apartments at Chelsea Cloisters was the provision of a hotel, inn or similar establishment. There were services provided – maid service, linen changing, cleaning, residents bar , concierge – that had the hallmarks of a hotel or inn. If so, the supplies were standard rated; Realreed should have charged VAT at 20% on the provision and accounted to HMRC for this.
Realreed argued that no room service or catering was provided; that there was no signage to suggest it was a hotel; and that the guests enjoyed a higher degree of autonomy than hotel guests would. Nevertheless, First Tier Tax Tribunal (FTT) decided that the letting was akin to hotels and similar establishments and was therefore standard rated.
HMRC found that Realreed was ‘careless in submitting VAT returns’ and issued VAT assessments of £4.8m for unpaid tax, which was later reduced to £4,572,415.
Comment
In the SDLT case the use of the property both before and after the purchase was important in determining the SDLT treatment.
The VAT case showed that there is little scope for businesses to challenge a VAT bill solely because HMRC has previously failed to query VAT treatment.
It’s important that businesses review their treatment of VAT on a regular basis to ensure they are taking reasonable care, even where previous audits haven’t raised any queries. The most effective way to do this is to seek professional advice concerning your VAT affairs to ensure any areas of ambiguity are removed.