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HMRC internal manual

VAT Land and Property

HM Revenue & Customs
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Hotels and similar establishments (Item 1d): legal background

Item 1(d) to Group 1 excludes from exemption supplies of 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 …’.

The intention is that accommodation that is temporary and provided on a short term basis, and by establishments in the hotel sector should be subject to tax. Such supplies are to be distinguished from supplies of property leasing or of longer term residential accommodation.

Item 1(d) mirrors Article 135(2)(a) of the Principal VAT Directive which excludes from exemption

‘the provision of accommodation … in the hotel sector or sectors with a similar function’.

The reference to ‘sectors with a similar function’ means the provision should have broad application and encompass all temporary accommodation which is in competition with the hotel sector and serves a similar purpose. The inclusion of ‘similar establishments’ in the UK legislation has the same effect.

The meaning of ‘similar establishment’ is extended by Note 9 to Group 1 to include:

‘premises in which there is provided furnished sleeping accommodation , whether with or without the provision of board or facilities for the preparation of food, which are used or held out as being suitable for use by visitors or travellers’.

It is important to note that this is an extension rather than a definition of the term ‘similar establishment’. As a result, it should be applied as a separate test (a point noted in Acorn Management Services Limited LON/2000/534 and other tribunal decisions). The extension, for example, relates expressly to ‘visitors and travellers’ and accommodation that is used or held out for the use of such people. This same restriction does not apply to Item 1(d) itself and the possibility therefore arises that accommodation used by persons who are not visitors and travellers could nevertheless be treated as accommodation in a similar establishment. For example, some hotels cater for longer stay guests and many Bed & Breakfast establishments are under exclusive contracts with local authorities or the DSS for provision of accommodation for homeless people. Such premises are not, as a result, advertised and made available for use by visitors and travellers but they are, in many cases, in competition with the hotel and boarding house sector and provide levels of services and amenities that would be expected in such establishments.

A reduced value rule operates for guests staying for more than 28 consecutive days. Guidance on the reduced value can be found in Section 3 of Notice 709/3 Hotels and holiday accommodation.

It is necessary to ask three questions when dealing with cases.

  • Is the accommodation provided in a hotel, inn or boarding house?
  • Is the accommodation provided in a ‘similar establishment’ to a hotel, inn or boarding house, adopting the ordinary meaning of that phrase?
  • Is the accommodation provided in a ‘similar establishment’, adopting the extended meaning given by Note (9)?