Are you paying too much VAT on serviced accommodation?

07 February 2020

Residential lets are usually exempt from VAT but if you supply accommodation in a hotel or similar establishment then your supply is standard rated. Serviced apartments are seen as ‘similar’ to hotel lets and therefore on the face of it, standard rated.

There has been a huge increase in the numbers of serviced apartments in UK cities like London as well as in the countryside, available for booking through AirBnB or other booking agents or direct from the provider’s website.

The problem is that having to pay VAT at 20% on these bookings means margins are squeezed and sometimes the business becomes unviable as a result.

Tour Operators’ Margin Scheme

The Tour Operators’ Margin Scheme, TOMS for short, allows businesses that buy in and sell on travel services, including accommodation, to pay VAT only on the margin and not on the full selling price.

TOMS applies where:

  • There is a supply of travel services i.e. accommodation;
  • You buy in and sell on the services as principal, not as agent;
  • You sell to the end user, either a traveller or a business that consumes the services itself; and
  • There is ‘no material alteration’ to the services.

TOMS can be used by service accommodation providers as long as they fall within these rules. The VAT cost using TOMS can be significantly lower than accounting for VAT on the full selling price. However the rules are complex. In particular what constitutes ‘material alteration’ can be a sticking point and under TOMS, input VAT is not recoverable on direct costs. Also if you opt for TOMS, you cannot issue a VAT invoice and your apartment will therefore be less attractive to business customers who won’t be able to recover any VAT.

HMRC allow businesses to go back 4 years to make a claim for overpaid VAT which means that you could be due a sizeable repayment if you could have been using TOMS instead of normal VAT rules. Please contact me for a no-strings attached discussion to see if your business could benefit from TOMS.

Contact the experts

Sue Rathmell is a VAT Director with MHA MacIntyre Hudson. She advises more than 100 tour operators and serviced accommodation providers on the Tour Operators’ Margin Scheme. Please contact her on 03330 100220 or by email at sue.rathmell@mhllp.co.uk