VAT on Serviced Accommodation and Holiday Lets
The long-awaited decision in Sonder Europe Ltd has been released, and Sonder have won quite convincingly, meaning that the court decided that TOMS should apply to the business’ sales of serviced apartments. We’re really pleased with this result and think this gives good grounds for other businesses to apply TOMS to serviced apartment in some circumstances, but would also add an air of caution as there are limits to the application of the decision at this time.
The Sonder case concerned whether TOMS could apply to sales of serviced apartments. Sonder leased apartments on long leases (3+ years) from landlords and sold on to guests directly for an average of 5 nights. Sonder sometimes took on the apartments from landlords on a furnished basis and other times unfurnished, and often added cosmetic changes to the apartments such as paint touch-ups and decorations. There was no mention of who paid for utilities. HMRC contested that Sonder could not fall into TOMS because it was not a tour operator and because it had materially altered the apartments.
The court decided that Sonder was a tour operator for the purpose of TOMS and that it did not materially alter the apartment. On this second point, this was for two main reasons:
The court did not accept that the lease duration mismatch was material alteration, saying that we must look at the characteristics of the actual apartment itself, rather than the terms on which it was supplied; and
The court believed that cosmetic additions to apartments which could easily be removed were not enough to materially alter the apartment and that they would expect “material alteration” of this nature to instead be structural.
With this in mind, it is clear at this stage that the court is seeking to apply TOMS widely.
Whilst being great news for the industry, this is by no means the end of the matter. Firstly, HMRC have 56 days to appeal the decision and, if appealed, it will likely be some time before a final answer is given to Sonder. Secondly, the time period in question relates to pre-Brexit where EU law took precedent, which may also change things for the position going forward. Thirdly, HMRC could decide to seek a change to the UK TOMS provisions going forward.
With this in mind, we would advise businesses to continue to exercise caution whilst using TOMS, and ensure that you fully review your position.
For those of you using the “two company strategy”, we would advise to continue with this to ensure any risks are limited.
We would ask those of you who are not currently using TOMS to consider lodging a backdated claim with HMRC as a first point on the back of this decision. This carries with it virtually no risk and would give your business a decision on whether you can use TOMS in your own circumstances.
Please do not get carried away and use TOMS for every supply without taking proper advice! It is easy to jump on the bandwagon when everyone in the industry is celebrating and deciding to use TOMS, but we still have a way to go to get a proper and final position going forward.
We now offer a full review service package for your eligibility for the TOMS scheme which may save VAT for operators in this sector.
The review will cover –
- Your customer base
- Your contracts with your landlords
- Your contracts with your customers
- Your eligibility to use the scheme
Please get in touch for further details.