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TAX NEWS: Reprieve for hotel and guest house board and lodgings adjustments. By Nichola Ross Martin

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31st Jul 2006
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HM Revenue and Customs has backed down on the retrospective implementation of changes announced in May 2006 to "Local agreements with hoteliers, tourist associations and tax practitioners". It says that "a consultation process is underway to review the impact of withdrawing these agreements within the Department and on our customers".

The effect of this announcement is that 2005/06 returns will be unaffected by any changes.

May's Working Together announced that the informal practice by local offices of allowing agreed fixed scale add backs for private use of accommodation, facilities and food for hotel and guest house owners would be stopped.

This has caused considerable concern within the hospitality industry because the Revenue's intention was that hotel and guest house owners should calculate their add-backs in the conventional method (apportionment of actual expenses in terms of metered private use) for the 2005/06 tax year. That year had of course had already ended by the time that this policy change was announced.

Quite clearly many hoteliers would have had a job not only estimating what had been used after the year end, but also the has been widespread concern about what should then be disclosed on returns in terms of additional information to explain the estimates and problems peculiar to each.

The original announcement (source: Working Together 25)
"Many guest house and hotel owners live on the premises. This means apportioning costs for the private use of accommodation, facilities and food. In the past a handful of Area Offices from the former Inland Revenue have agreed a fixed scale of add-backs with local hoteliers and tourist associations and tax practitioners, as a pragmatic approach. This has led to inconsistency across the country as each Area participating in these arrangements has set its own scales.

We will not disturb any arrangement that has been agreed for 2004-05 (Returns with a filing date of 31 January 2006) and earlier years. Area Offices which have entered into such arrangements with particular hoteliers, tourist associations or tax practitioners will write to explain that those arrangements are being withdrawn."

The lastest press release says:
"As a temporary measure the agreements may be extended to include the 2005/06 Returns by contacting the Area with whom you had the original agreement.

We intend to publish the results of our review on our website shortly. We will let you know when it is available.

Ian Hayes, Chairman of the ICAEW Tax Faculty Technical Committee commented in a recent Taxline editorial that "Our tax system is too precious to ruin by ill tempered meddling. We need revenue to be consistent and a system that taxpayers can understand and apply".

The apparent "re-consideration" of this policy change for hoteliers' local agreements seems to be another case of ill thought out meddling. It is obvious that the informal agreements in existent were inconsistent, in that they were not applied universally throughout tax offices. But, that does not mean that a system that was working extremely well for those able to use it should therefore be totally abandoned. It is painfully obvious that it would ease compliance costs and make life 100% easier for all in the industry if a formalised system of add-backs were sanctioned."

Related article:
HMRC to standardise tax treatment of add-backs

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