Guidance: Hotels and holiday accommodation (VAT Notice 709/3)

1. Overview

1.1 What this notice is about

This notice explains how supplies by hotels, inns, boarding houses and similar establishments should be treated for VAT purposes — read sections 2 to 4 of this guidance.

It also explains how supplies of holiday accommodation, including caravans and camping facilities, should be treated — read sections 5 and 6 of this guidance.

Deposits, cancellations and other charges associated with the supply of hotel and holiday accommodation are covered in section 7 of this guidance.

This notice has been updated to reflect legislative changes that introduce a temporary 5% reduced rate on supplies of the:

• provision of sleeping accommodation in:
  • hotels
  • inns
  • boarding houses and similar establishments
• grant of a license to occupy holiday accommodation and charges for:
  • seasonal pitches for caravans — including supplies of facilities provided in relation to the occupation of the pitches
  • pitches for tents and camping facilities

All references in this notice to “temporarily reduced rated” or “temporary reduced rate” are to supplies made between 15 July 2020 and 31 March 2021.

1.2 Who should read this notice

Anyone who makes supplies of accommodation or other services in the hotel and holiday sector.

1.3 The law this notice covers

This notice covers the following areas of the VAT Act 1994:

• paragraph (d) to Item 1, Group 1, Schedule 9 (exclusion from land exemption for accommodation in hotels, inns, boarding houses and similar establishments)
• paragraph (e) to Item 1, Group 1, Schedule 9 (exclusion from land exemption for holiday accommodation)
• paragraph (f) to Item 1, Group 1, Schedule 9 (exclusion from land exemption for seasonal pitches for caravans);
• paragraph (g) to Item 1 Group 1, Schedule 9 (exclusion from land exemption pitches for tents);
• paragraph 9 of Schedule 6 (reduced valuation rule for stays of over 28 days in hotels and so on)

1.4 The law in relation to the temporary reduced rate

This notice now also covers the following areas of the VAT Act 1994:

Section 29A of the VAT Act 1994 provides that the goods and services specified in Schedule 7A to the Act are reduced rate supplies. By virtue of The Value Added Tax (Reduced Rate) (Hospitality and Tourism) (Coronavirus ) Order 2020, Schedule 7A, Group 15 specifies any supply which, because it falls within paragraph (d), (e) so far as the supply consists of the grant of a license to occupy holiday accommodation, (f) or (g) of Item 1 (Land) in Schedule 9, is not an exempt supply by virtue of that Item as being entitled to the new rate.

2. Hotels, inns, boarding houses and similar establishments

2.1 Definition of hotels, inns, boarding houses and similar establishments

Establishment type	Description
Hotels, inns and boarding houses	Commercial establishments providing lodging (furnished sleeping accommodation) and possibly meals and other facilities such as laundry services, communal TV or rest rooms and phone services for guests and visitors. An establishment does not have to provide food or other facilities to be regarded as a hotel, inn or boarding house.
Similar establishments	Establishments with similar characteristics to hotels, inns and boarding houses, and any premises, in which furnished sleeping accommodation is provided, that are used by or held out as being suitable for use by visitors or travellers (but not if such use is only occasional). This includes motels, guesthouses, bed and breakfast establishments, private residential clubs, hostels, and serviced flats (other than those for permanent residential use).

2.2 VAT liability of accommodation

From 15 July 2020 until 31 March 2021 a hotel, inn, boarding house, or similar establishment will benefit from a temporary reduced rate of 5% when supplying:

• sleeping accommodation, including bathrooms, living rooms and suites
• accommodation used for the supply of catering (read paragraph 4.1 of this guidance)
• rooms provided with sleeping accommodation

If you provide furnished sleeping accommodation for long stay guests, read section 3 of this guidance.

Read section 4 of this guidance for information about other types of supplies made by hotels, inns, boarding houses and similar establishments, such as conference facilities and wedding packages.

3. Long stay guests

3.1 Reduced value rule

This rule allows the charge for the actual sleeping accommodation element of the supply to be relieved from VAT when a guest stays for over 28 consecutive days. But the supply of accommodation does not become exempt from VAT, it is still taxable and the normal input tax rules apply. As such, the reduced value rule operates differently from the temporary reduced rate for VAT as it operates to relieve part of the charge for the supply from VAT as opposed to reducing the rate of VAT charged.

3.2 How the reduced value rule works

You need to establish that you’re providing accommodation in a hotel, inn, boarding house or similar establishment. The reduced value rule does not apply to holiday accommodation, read sections 5 and 6 of this guidance.

If a guest stays in your establishment for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.

If you make an inclusive charge for bed and board you must apportion it reasonably and charge VAT on the full amount that is not for the accommodation. When you do this, you must calculate the amount of your charge that is for meals, drinks and other services, and also treat at least 20% of the remainder as being for facilities. But if the true value of the facilities is more than this, you must charge VAT on the true amount.

The examples in section 8 of this guidance show you how to work out the reduced value of your supply.

3.3 Individuals who are eligible for the reduced value rule

The reduced value rule applies to individuals who stay with you for more than 28 days in a hotel, inn or any similar establishment (either alone, or together with one or more other individuals who stay otherwise than at their own expense).

The rule does not apply to bookings by companies where the accommodation is used by a succession of short-term occupants, and each stay is less than 29 days at a time. For example, it does not apply where airlines make block bookings of hotel accommodation for crew stopovers. But where the supply is made to someone other than the individual who will be using the accommodation, but the stay by the individual is for more than 28 days, then the rule will apply. This often occurs where the supply of accommodation for homeless people is made to a local authority. In such cases the reduced value applies from the 29th day of each individual’s stay.

A guest’s stay must be continuous to qualify for the reduced value rule. For example, if a guest stays for 3 weeks every month, you must always charge them VAT in full. If another guest stays for 5 weeks, leaves for a week, and returns to stay for 5 more weeks, the reduced value rule applies only to the fifth week of each separate stay.

But a guest’s departure is not seen to end their stay provided the guest either:

• is a long-term resident and leaves for an occasional weekend or holiday
• is a student who leaves during the vacation but returns to the same accommodation for the following term
• pays a retaining fee

In these cases, the time away is ignored and you only have to charge VAT (whether temporarily at the reduced rate or at the standard rate outside the temporary period) in full for the first 28 days of the overall stay.

It does not matter whether the guest returns to the same room or not.

For examples of how to calculate the reduced VAT value for accommodation exceeding 28 days (read section 8 of this guidance).

4. Accommodation supplied for catering and other supplies

4.1 Accommodation used for catering

If you provide accommodation in a room within a hotel, inn, boarding house or similar establishment for the purpose of catering, your supply will benefit from the temporary reduced rated from 15 July 2020 to 31 March 2021. This is the case regardless of whether the catering is supplied by you or by another person. Read Catering, takeaway food (VAT Notice 709/1).

If you supply a room that is not for the purpose of a supply of catering such as for a conference, your supply is exempt, provided you have not opted to tax. Read Opting to tax land and buildings (VAT Notice 742A).

4.2 Accommodation and catering supplied to employees

If you supply your employees with accommodation or food and drink, in your establishment and they pay for it, the payments are treated as including VAT and you must account for it on your VAT Return.

Where employees pay for meals and so on from their pay including under a salary sacrifice arrangement employers must account for VAT from 1 January 2012 on such supplies unless they are zero-rated. Subject to the normal rules, the employer can continue to recover the VAT incurred on related purchases.

4.3 Other accommodation and services

Other supplies of accommodation such as hiring a room for a meeting, or letting of shops and display cases are generally exempt, but you may choose to standard rate them by opting to tax, read Opting to tax land and buildings (VAT Notice 742A).

If you make an exempt supply such as providing a room for a meeting or a conference and you provide minimal refreshments such as tea, coffee and biscuits, the room and the incidental catering will be treated as a single exempt supply. But, if you serve substantial refreshments such as a meal or buffet, the catering should be treated as a separate supply and you must account for VAT based on the normal charges you would make for such catering.

Where a meeting room is supplied, together with meals and overnight accommodation in return for an inclusive charge, each element is treated as a separate supply. The catering and the overnight accommodation is taxable (and will benefit from the temporary reduced rate), while the supply of the meeting room is exempt unless you have made an option to tax.

Any additional goods or services which are separately charged for are standard-rated (for example, catering, car parking, use of equipment and licensed bars).

4.4 Wedding packages

If you supply a package of wedding services (for example, use of rooms for a ceremony, wedding breakfast and evening party), this is a single standard-rated supply, regardless of whether the catering is supplied by you or someone else.

However, between the 15 July 2020 and 31 March 2021, if you simply provide catering on your own premises (such as a wedding breakfast) and you’re not providing this a part of a wedding package, it may benefit from the temporary reduced rate. For more information, read Catering, takeaway food (VAT Notice 709/1).

4.5 The sale or letting of an entire hotel, inn, boarding house or similar establishment

If you grant a long lease in a hotel premises to someone else who will operate it as a hotel business, your supply is exempt, unless you have opted to tax.

The freehold sale of a hotel building is also exempt (subject to the option to tax), unless you make the sale less than 3 years after the building was completed, in which case, it is standard-rated.

For information about opting to tax, read Opting to tax land and buildings (VAT Notice 742A).

If you’re a hotel operator and you sell your business and its assets, you should consider whether the sale meets the conditions for being treated as a VAT free transfer of a business as a going concern. Read Transfer a business as a going concern (VAT Notice 700/9).

5. Holiday homes

5.1 Definition of holiday accommodation

Holiday accommodation includes, but is not restricted to:

• any house
• flat
• chalet
• villa
• beach hut
• tent
• caravan
• houseboat

Accommodation advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation. There may be a restriction under which occupation of the property throughout the year is not permitted, but this will not always be the case.

If you specifically provide holiday accommodation in the form of a motorhome, your supply will qualify for the temporary reduced rate.

The hire of a boat will qualify for the temporary reduced rate provided that it is suitable for holiday accommodation and is being held out in this way. Boats being hired for a day to enjoy the activity of sailing for example will not qualify for the temporary reduced rate as they are not being used for holiday accommodation.

Residential accommodation that happens to be situated at a holiday resort is not necessarily holiday accommodation. For details of how to treat off-season letting, read paragraph 5.6 of this guidance.

Accommodation in hotels, inns, boarding houses and similar establishments is not ‘holiday accommodation’ for VAT purposes. You should read sections 2 to 4 for guidance on how VAT applies to such establishments.

5.2 Accounting for VAT on holiday accomodation

If you supply holiday accommodation, or a site for such accommodation, you must account for VAT at either the standard rate (or the temporary reduced rate) on any charges that you make regardless of the length of occupation or description of the charges.

There are exceptions to this which are explained here.

5.3 Sales and leases of holiday accommodation

If you sell or lease new holiday accommodation, your supply is standard-rated. You must account for VAT on the initial charge, and on any periodic charges such as ground rents and service charges.

A property is considered to be new for 3 years from the date on which a certificate of practical completion is issued, or it is first fully occupied, whichever is the earlier.

Standard-rated VAT also applies to the first sale or long lease of a building (or part of building) designed in a dwelling if the building is a new building and the grantee is:

• not entitled to reside in the accommodation throughout the year
• prevented from residing in the accommodation throughout the year by the terms of a covenant, statutory planning permission or similar restriction
• prevented from using the accommodation as their principal private residence by the terms of a covenant, statutory planning permission or similar restriction

In these circumstances, the supply is treated as a supply of ‘holiday accommodation’ even if the accommodation would not otherwise be regarded as holiday accommodation.

5.4 Sales of holiday accommodation that is not new

The sale of holiday accommodation that is no longer new is exempt.

The lease of holiday accommodation that is no longer new is exempt to the extent that the payment is in the form of a premium. But any periodic charges, such as ground rent and service charges, are standard-rated.

If you’re in the business of providing holiday accommodation and you transfer the business and assets to another party, you should consider whether the sale meets the conditions for being treated as a VAT free transfer of a business as a going concern — read Transfer a business as a going concern (VAT Notice 700/9).

5.5 Supply of site for holiday accommodation

If you make a supply under a tenancy, lease or licence agreement under which the grantee is or has been permitted to erect and occupy holiday accommodation, you must account for VAT at the standard rate. However, a license to occupy holiday accommodation granted between 15 July 2020 and 31 March 2021 will be temporarily reduced rated.

If you sell the freehold interest in a site for the erection of holiday accommodation (and the site is merely bare land), your supply is exempt unless you have opted to tax — read Opting to tax land and buildings (VAT Notice 742A).

5.6 Off-season letting

If you let your holiday accommodation during the off-season, you should treat your supply as exempt from VAT provided it is let as residential accommodation for more than 28 days and holiday trade in the area is clearly seasonal.

You should keep a copy of your tenancy agreement or similar evidence that you have to show that your accommodation was occupied for residential purposes only. In such cases the whole of the let, including the first 28 days should be treated as an exempt supply.

The holiday season normally lasts from Easter to the end of September, although some areas, such as London and Edinburgh, receive substantial numbers of visitors and tourists at all times throughout the year and are therefore not regarded as having a seasonal holiday trade.

5.7 Time-share and other multi-ownership schemes

The supply of a timeshare in holiday accommodation (defined in paragraph 5.1 of this guidance) is:

• standard-rated if the building is new (read paragraph 5.3 of this guidance)
• exempt if the building is not new (the grant is made more than 3 years after construction is completed)

But exemption only applies to the extent that the grant is made for a consideration in the form of a premium. Rent, service charges and management fees received after the initial lump sum are standard-rated. You may be able to treat some of the components of the periodic charge as disbursements, for example insurance and rates. But you must meet the conditions of a disbursement before you can do this for VAT purposes. For more information, read VAT guide (VAT Notice 700).

The supply of a timeshare in a hotel, inn, boarding house or similar establishment (defined in paragraph 2.1 of this guidance) is standard-rated regardless of how old the building is.

If you operate a holiday ‘points’ club under which members of a club purchase points which can be exchanged for holiday or hotel accommodation, you are making a standard rated supply at the time at which the points are converted into the right to occupy UK holiday or hotel accommodation. However, if the points are converted between 15 July 2020 and 31 March 2021 you are making a temporarily reduced rated supply. If points are converted into the right to occupy accommodation situated outside the UK, your supply is outside the scope of UK VAT.

5.8 Reduced value rule for holiday accommodation

There is no reduced value rule for holiday accommodation.

6. Camping and caravans

6.1 Camping

If you provide a pitch for a tent or holiday accommodation in a tent (read paragraph 5.1 of this guidance), your supply is standard rated (or temporarily reduced rated). The supply of any associated facilities is also temporarily reduced rated in the relevant period if part of a single supply.

There is no reduced value rule (read section 3 of this guidance) for tents or pitches for tents.

6.2 Caravans (including mobile homes, park homes and static caravans)

If you provide holiday accommodation (read paragraph 5.1 of this guidance) in any type of caravan already sited on a pitch, your supply is standard rated or temporarily reduced rated. For VAT purposes, the term ‘caravan’ includes mobile homes, park homes, touring caravans and static caravans.

The sale or long lease of a caravan is zero-rated if the caravan exceeds certain size limits.

7. Deposits, cancellation and other charges

7.1 Deposits

Most deposits serve as advance payments, and you must account for VAT in the return period in which you receive the payment.

If you retain a deposit for a booking which your customer fails to take up VAT remains due.

Example

A customer books a hotel room in advance and, at the time of booking pays £100, being the full price of the room. The customer cancels or fails to turn up and, in accordance with the booking terms, the hotel keeps the full amount of the payment.

VAT is due on the £100. A payment is made in advance for a service that is to be supplied at an agreed point in the future. VAT becomes due when the payment is made. It cannot be reclassified later if the customer does not take up the room.

If the payment were 50% of the agreed price, in this instance £50, then VAT is due on £50.

The VAT accounted for may only be reduced to the extent that the supplier refunds the payment to the customer.

7.2 Cancellation charges

If a payment is made (in full or in part) for a taxable supply, VAT is due when the payment is made. Payment taken in advance for a hotel room cannot be reclassified later as a cancellation charge that is outside the scope of VAT, if the customer does not take up the room.

If a room is not taken up VAT accounted for can only be reduced to the extent that the payment is refunded to the customer.

7.3 Credit card guarantees

Where credit card details are taken, but no charge is made until the services are due to be used, VAT is due when the payment is taken.

Similarly, any other forms of payment for a future supply which the customer is obliged to make at a future date will be subject to VAT if the supply is unfulfilled.

Example

A customer books a hotel room in advance. No payment is taken. Instead, a commitment to pay the full agreed price (possibly accompanied by authorisation to take the payment from a credit card) is given by the customer and will become payable whether the room is used or not. The customer cancels or fails to turn up and the customer’s credit card is charged with £100.

The £100 is taxable.

Similarly if the customer commits to only pay 50% of the agreed price then VAT will be due on 50% of the price, in this instance on £50.

7.4 Booking fees

Booking fees are treated in the same way as a deposit (read paragraph 7.1 of this guidance).

If you’re an agent who arranges a supply on behalf of someone else you must account for VAT on any booking fees you charge whether or not the booking is taken up.

7.5 Retention fees

Retention fees are paid to reserve accommodation for future use and will fall within the temporary reduced rate. But a retention fee paid for a period of absence after the first 28 days of a stay may benefit from the reduced value rule (read paragraph 3.3 of this guidance).

If the fee is no more than the amount of your charge that you treat as being for accommodation under the reduced value rule, no VAT is due on the fee. If the fee is more than that amount you must apportion the fee between accommodation and facilities (read paragraph 3.2 of this guidance).

7.6 Service charges

Any service charge you make is standard-rated.

7.7 Tips

Any tips that are given voluntarily over and above the total charge you receive are outside the scope of VAT. Any compulsory charges are liable to VAT at the same rate as the principal supply.

8. Examples of how to calculate reduced VAT value under the temporary reduced rate

The weekly terms for accommodation, facilities and meals in a boarding house are £105.00, that is, £100.00 plus £5.00 VAT at a temporarily reduced rate of 5%, of which £42.00 represents the tax inclusive charge for meals. (For the purpose of these examples the proportion for meals has been taken to be 40% but this will not always be so.)

VAT (at the temporary reduced rate) is chargeable on the full amount for the first 28 days and on the reduced value thereafter. After the first 28 days of occupation the reduced VAT value may be calculated in one of the following ways:

(a) If your charges are shown as VAT exclusive the amount of VAT you should charge each week is calculated as follows:

Details	£	VAT (£)
Total VAT exclusive charge	100.00
Less VAT exclusive charge for meals	40.00	2.00
VAT exclusive accommodation charge	60.00
VAT exclusive value of facilities (20% of £60) (20% being a minimum of accommodation charge)	12.00	0.60
Total VAT due		2.60

The weekly charge from the 29th day is £100.00 + £2.60 VAT.

The weekly charge before the 29th day is £100.00 + £5.00 VAT.

(b) If your charges are shown as VAT inclusive and the total amount charged to the guest is reduced after the first 28 days to take account of the reduced element of VAT, the weekly rate of VAT is the same as in (a) but the calculation is as follows:

Details	£	VAT (£)
Total VAT inclusive charge	105.00
VAT inclusive charge for meals	42.00	2.00
Balance for facilities and accommodation	63.00
VAT included at reduced rate (1/21 of 63)	3.00
VAT exclusive accommodation charge	60.00
VAT exclusive value of facilities (20% of £60.00) (20% being a minimum of accommodation charge)	12.00	0.60
Total VAT due		2.60

The weekly charge from the 29th day is £100.00 + £2.60 VAT.

The weekly charge before the 29th day is £100.00 + £5.00 VAT.

Whichever method you use, you must include the full VAT exclusive amount of your charges in box 6 of your VAT Return, even though VAT is due only on the reduced value. This is because the part of the total charge that is for accommodation continues to be for a temporarily reduced -rated supply, even though its value for the purpose of calculating VAT due becomes nil after the first 28 days.

The full VAT exclusive amount is included in your turnover for VAT registration purposes.

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