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VAT Implications

VAT Implications

Hi to All,

One of my clients has an intention to manage a building which has a hotel and flats above the hotels. My client would offer short term tenancy for the period between 2 to 6 months.

He is asking me the following VAT related questions,

  1. VAT implications on the flats above the hotel
  2. VAT implications if tenancy is longer than 3 months

I would appreciate your quick response.

Kind Regards


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03rd Apr 2012 08:57

Assuming no option to tax

(strictly my opinion, await confirmation!)

Flat rental would be Exempt income, regardless of length of tenancy, provided it is residential accomodation (i.e. not the hotel)

Hotel accomodation would be SR.

WITH an OtT, everything would be SR.

Thanks (1)
By zaidi
03rd Apr 2012 09:34

I wish more comments!

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03rd Apr 2012 09:49

OTT doesn't affect residential

An Option to Tax doesn't actually affect residential accomodation, "dwellings" as the legislation puts it.

So a flat used as a dwelling is always exempt. However excluded from exemption is "the provision in a hotel, inn, boarding house or similar establishment of sleeping acomodation".

So I'd say it depends on how this is all held out and licensed, if the whole premises is covered by a single licence as a hotel or boarding house including the flats then I'd say they become part of the "hotel..." etc., and so would be standard rated.

You may need to look at what the short term tenancies are for, are these students or workers visiting for short periods, people between homes in a chain, or what. The types of occupation you get can help to decide the liability,

There are numerous tribunal cases on such things and sometimes the letting of flats can be seen as either holiday accomodation, or under the similar establishment bit, or sometimes dwellings. If the flats go on the same terms and conditions as any other room in the hotel then you'd probably have a hard time convincing HMRC that they're not part of it, after all many hotels have larger suites above the 'normal' rooms. (With 'Constantly' in mind the mantra would go "It it looks like a hotel room, is occupied like a hotel room, and is charged like a hotel room.......")

One thing to bear in mind is that with hotel accomodation, then the long stay valuation rules will come into play. These mean that where a stay exceeds 28 days, the value of the supply drops to only the 'service'/use of facilities element (which should be 20% or higher of the total charge). note that this doesn't make the other 80% or whatever may be the appropriate level exempt, it stays taxable allowing full recovery it's just that it has no VATable value. [This bit may be what the client is thinking of with the 3 month question, but as I say it's one month not three]

So unfortunately no real answers here, but I hope it helps.

Thanks (2)
03rd Apr 2012 11:48


This is why I say to wait for further 'opinions', I manage to miss fundamental points!

Tbh I had never given any real thought to whether an OtT changes the taxable nature of a residence, but I will now bear that in mind!

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By zaidi
03rd Apr 2012 11:54

Thank you Spidersong.

Your email helped me a lot.

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By zaidi
03rd Apr 2012 11:55

Please give me more comments

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