VAT liability of residential accommodation

VAT liability of residential accommodation

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The line between what is VAT exempt residential accommodation and taxable accommodation, namely hotels and similar establishments, is ever changing, making this a potential high risk area for taxpayers in the sector. With platforms like Airbnb shaking things up, it’s hard to tell what’s exempt from VAT and what’s taxable. The Realreed Limited case is a prime example of this confusion.

Realreed, a provider of short and long-term flats, found itself in the crosshairs of HMRC’s assessment, facing a staggering £4.5 million VAT liability claim.

Realreed treated its supplies of the accommodation as exempt from VAT, while Cloisters, an associated company, who were offering a number of services to the occupants, namely secure parking, 24-hour concierge, check-in desk, 24-hour security and CCTV, 24-hour porterage, in-house bar, satellite and Freeview TV, charged VAT on its supplies.

HMRC raised an assessment of circa £4.5m on the basis that Realreed’s supplies were standard-rated, being the provision of sleeping accommodation in a hotel, inn, boarding house or similar establishment.

The Tribunal agreed with HMRC on the basis that what was “offered” at the accommodation was similar to a hotel and so Realreed was providing taxable accommodation.

The fact that the accommodation was short-term, taken with the additional and ancillary services offered, meant that Chelsea Cloisters was in potential competition with the hotel sector.

This is in interesting decision in view of the fact that contractually there were two separate supplies being made but the Court took the view that the substance of the arrangements was the deciding factor in this case.

It is crucial for taxpayers in this sector to remain vigilant and seek professional advice to ensure compliance with VAT regulations. So, if you find yourself in this grey area (or, indeed, you feel it puts you in the realm of a potential VAT liability), please get in touch with Xeinadin’s Indirect Tax team.

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