Potential VAT opportunity in the ‘rent to serviced accommodation’ sector

Daniel May, VAT manager looks at a recent VAT tribunal decision has presented a potential opportunity for landlords who let serviced accommodation on a rent-to-rent (‘R2R’) basis.

02 August 2023 - Daniel May

Rent-to-Rent (R2R) refers to a situation whereby a person takes out a longer-term lease of a property and makes onward rental supplies themselves – this update deals with those letting short term holiday accommodation, such a week’s stay in a holiday cottage.

From a VAT point of view, the initial rental would more often than not be considered an exempt land-related supply. The onward supply of holiday accommodation would be subject to a VAT charge, assuming the landlord had exceeded the VAT registration threshold.

Most supplies of holiday accommodation are sold to individuals, not to businesses. Therefore, adding VAT on top of the supply (especially with no input tax to recover on the initial rental) is not a desirable, but often unavoidable scenario.

Based on the facts in question, the first-tier tribunal has ruled that an R2R business falls within the scope of the Tour Operator’s Margin Scheme (‘TOMS’). TOMS is a specialist VAT scheme for businesses that buy in travel and other related services, for example a conference business that buys hotel accommodation for delegates, or a hotelier who buys coach transport for guests to and from their hotel.

Using the TOMS, VAT is only payable on the difference between the sale price and the cost of buying in the services – effectively providing VAT relief on the initial rental via another means – resulting in potentially significant savings.

To fall within the TOMS, a business must supply services of any kind commonly provided by tour operators or travel agents, for the benefit of travellers. Those services must have been bought-in and supplied as principal, without material alteration or further processing. So for example, the hotel accommodation for conference delegates could not be modified, and the coach transport could not be adapted or changed. The recent case confirmed that an R2R business would usually fall within the scope, but as always, each case must be reviewed on its own merits. modified

If you would like to discuss whether your supplies could fall within the TOMS and VAT could be accounted for more efficiently, please contact Daniel May at hello@scruttonbland.co.uk or phone 0330 058 6559.

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