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VAT on Serviced Accommodations: Is your income over the VAT threshold?

Published by Prasun Shrestha
Published Date: November 10, 2023

Imagine this: You've got a sweet income stream from your holiday lets and serviced accommodations. But before you start counting those extra quid, let's break it down.

Serviced accommodation, those comfy home-away-from-home spots with hotel-style perks, are all the rage these days. They're the go-to choice for both business travellers and folks just looking to kick back.

They cater to a whole bunch of crowds, from tourists and leisure seekers to business hotshots and even contractors.

Everything is not rainbows and butterflies, we will need to understand the tax implication around the nature of Serviced Accommodation business.

Amongst other, the primary tax is VAT which we will be digging deeper into in this article.

Interaction of VAT with Serviced Accommodation business in the UK

Typically, residential lets get a Value Added Tax (VAT) exemption, but once you step into the realm of supplying accommodation in hotels or similar setups, the VAT becomes standard rated. Serviced apartments, considered akin to hotel lets, fall under this standard-rated category.

Interaction of VAT with Serviced Accommodation business in the UK

The surge in serviced apartments, whether in bustling UK cities like London or the serene countryside, accessible through platforms like Airbnb or booking agents, poses a challenge. With a 20% VAT imposition on these bookings, profit margins shrink, pushing some businesses to the brink of viability.

Tour Operators’ Margin Scheme

The Tour Operators Margin Scheme (TOMS) is tailor-made for businesses directly purchasing and reselling travel, accommodation, and specific services under their own name or as undisclosed agents. It doesn't apply to agents working on behalf of others.

This scheme caters to companies playing a pivotal role in buying and reselling travel-related services, ensuring simplicity by bundling various transactions aimed at the same entity into a unified supply.

TOMS applies to:

  • There is a supply of “Travel services”.
  • The supplier is acting in his OWN NAME.
  • The service is acquired from a third party and are supplies without “material alteration” or “further processing”.
  • The service are supplies “for the benefit of the traveller”.

Serviced Accommodation business providers fall under TOMS as long as these conditions are fulfilled.

Benefit of TOMS

  • Reduced VAT liability as the VAT will only be charged on the margin made by the serviced accommodation, rather than from the full selling price.
  • Recoverability of Input VAT incurred on the indirect Expenses like agent fees, accountancy fees, etc.

Tour Operators’ Margin Scheme Threshold

If you considering if the TOMS is applicable to your business and must register for VAT, your threshold limit must be checked.

Generally, under normal VAT scheme, the threshold limit is ÂŁ85,000 of your taxable turnover.

Tour Operators’ Margin Scheme Threshold

However, for TOMS we consider the taxable turnover as follows:

  • Total margin on your taxable Margin Scheme.
  • Full value of your taxable (including zero-rated) in house supplies, taxable agency commission.
  • Any other taxable (including zero-rated) supplies you make in the UK.

VAT Liability of the Margin

Your margin liability is:

  • Standard rated when the tour is enjoyed in the UK.
  • Zero rated when enjoyed outside the UK.

The temporary reduced rate does not apply to the margin.

The VAT liability of in-house supplies included within a Margin Scheme package is not affected by these rules.

Conclusion

After meeting the eligibility criteria and surpassing the threshold limit, TOMS becomes mandatory for you. Ensure that all criteria are met and well-documented to adhere to the requirements.

Have questions about VAT on holiday lets and serviced Accommodations?

Contact us today for efficient and hassle-free assistance.

Prasun Shrestha
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