Revenue & Customs Brief 02/13 was issued on 22 January 2013 and confirms HMRC have changed their view on whether rooms hired out by hotels and similar establishments are VAT exempt (without an option to tax applying anyway) or standard rated. Actually the brief says that HMRC changed their mind on this issue some time ago, but didn't tell anyone. They don't intend to take any action for supplies
The issue is, thankfully, quite simple. Supplies of the right to occupy land are VAT exempt, but the law says that the following supplies are excluded from the exemption and are thus standard rated.
the provision in an HOTEL, INN, BOARDING HOUSE or SIMILAR ESTABLISHMENT of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering
It is the last part of this rule that we are concerned with, the provision of rooms used for catering. HMRC has historically taken the view that only where the supplier of the accommodation supplied the catering too was the supply compulsorily standard rated. Now HMRC has taken the view that this is wrong and the hire of a room is standard rated whoever supplies the catering.
Whilst I can see the logic of HMRC's view, I am still not sure that their approach is entirely correct, and I would raise the following issues.
1. The supply of such rooms is only standard rated when supplied in a hotel, Inn boarding house or similar accommodation. So supplies in facilities that are not of these descriptions remain exempt. Arguably this may render the same supply being treated differently when, in the eyes of the supplier and the customer, it is the same supply. This feels wrong when so much of litigation going on at the moment in Europe is about treating similar supplies the same.
2. The supply depends on actions that the customer takes, and this seems practically very difficult. Suppose I go to hire a room in a hotel for a family celebration. Am I to be quizzed by the hotel as to my catering arrangements? What if I am not sure what the arrangements will be?
3. The law talks about a SUPPLY of catering. In what sense? What if I hire a room for my sons birthday and we butter up a few sandwiches ourselves, serve the usual mini sausages, crisps and the like. Is this a SUPPLY of catering? Or does it have to be a commercial catering supply by a caterer or the supplier of the room?
4. I think most people know what a hotel is, and probably an Inn. But what exactly is a boarding house? This shows my age, but the closest I can get to is the establishment run by Rupert Rigsby in Rising Damp. And as for 'similar accommodation', the VAT notice says it includes premises in which there are provided furnished sleeping accommodation (with or without board or facilities for the preparation of food) and which are used or held out as being suitable for use by visitors or travellers. But in this context, what is included? Presumably a college that provides accommodation is, but a conference centre is not. Confusing...
5. If one looks at the exclusions from the exemption for supplies of land, the supplies are mostly about the supply being made up of other elements of which the land is part of the supply, such as hotel rooms themselves, parking facilities etc. But if I hire a room for my sons birthday, firstly what I do with the room is my concern (subject to any licensing restrictions etc), and secondly what additional facilities am I being supplied with? There have been cases that have held that a hotel provides a package of supplies, from reception to parking and this makes the supply more than the land. But surely most suppliers of rooms could arguably be providing something additional, even if it is free use of the car park. Looking at basic CPP principles, are these elements not for the better enjoyment of the land as opposed to being aims in themselves.
6. There is no transitional relief. Supplies made before 22 January 2013 are safe. Well, thank you HMRC! What about the wedding booking my hotel may have taken for the next 2 years, where I have agreed prices? No doubt some awkward discussions with several stressed brides and grooms to be. Hopefully contracts are on an VAT exclusive basis, allowing additional VAT to be charged. Surely HMRC could have allowed the present treatment to apply in respect of supplies where deposits and contracts have already been exchanged?
7. Lastly, the concern I have is HMRC imposing VAT without legislation. What if I change my view on whether VAT is due on a supply. Can I change my mind? This seems wholly unsatisfactory and HMRC must legislate on this position ASAP and clarify some of the issues I have raised.
I would be very interested in any comments on this.
About The VAT Doctor
I have been involved in VAT for over 25 years and have worked for some of the top firms in the UK and also had a spell working in New Zealand. I advise small and medium businesses and accountancy practices and have particular experience in education, charities, international supplies and partial exemption. I am based in the beautiful county of Norfolk.