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HMRC internal manual

VAT Land and Property

What is a 'similar establishment' to a hotel, inn, or boarding house?: characteristics and functions

A number of tribunals have addressed the issue of ‘similar establishment’ by considering the characteristics and functions demonstrated by the establishment in question. These characteristics, or the lack of them, have then been compared with those that hotels, inns and boarding houses normally possess.

Such a method is felt to be consistent with the views of the Advocate General in the ECJ case Blasi v Finanzamt Munchen 1 (Case 346/95). One of the issues before the ECJ in this case was whether the length of time for which accommodation was provided was an appropriate way of identifying accommodation in the hotel sector. Under German law, Article 135(2)(a) is implemented by excluding ‘short-term accommodation of guests’ from exemption.

In considering the issue the AG commented that a distinction could be made between the active exploitation of property by the hotel sector and the more passive exploitation in other sectors. He said short term lets were

‘… more likely to involve additional services such as the provision of linen and cleaning…’ and ‘…they involve more active exploitation of the property than long term lets insofar as greater supervision and management is required’.

This approach was adopted in Westminster City Council (VTD 3367) in relation to Bruce House (a hostel for homeless men). Having found that Bruce House was not a hotel, inn or boarding house the tribunal went on to decide whether it could be described as ‘similar’. The issue was set out by the tribunal as follows;

‘…it seems to us that we should ask ourselves this question ‘is Bruce House, though it would not normally be regarded as an hotel, inn or boarding house, an establishment which has some of the characteristics of an hotel, inn or boarding house?’ ‘.

It continued:

‘So we conclude that Bruce House certainly has some of the significant characteristics that are shared by hotels, inns and boarding houses. Are there any characteristics that Bruce House lacks but which an hotel, inn or boarding house possesses and which are fundamental to the nature of an hotel, inn or boarding house with the result that the lack of them in Bruce House is not similar? The customers of hotels, inns and boarding houses are normally provided with a bedroom that provides complete privacy and can normally be locked. In Bruce House the sleeping accommodation is only unlockable cubicles, affording little privacy. The standards of sanitation, laundry facilities and service at Bruce House are of low order, probably lower than at the vast majority of even low grade hotels. Hotels, inns and boarding houses are normally run with a view to making a profit but Bruce House has never been so run’.

The tribunal concluded:

‘We ask ourselves whether these differences are such that we should regard Bruce House as an establishment that is so different as to be different in kind, or are they differences which are little more than differences of degree so that it would be right to say that Bruce House, though not the same as an hotel, inn or boarding house is, nevertheless, similar. This must be largely a matter of impression but we have come to the conclusion that the differences are not so great as to make us say that Bruce House is not similar to an hotel, inn or boarding house’.

It is significant that the tribunal reached this decision despite the very basic nature of the services provided and the absence of some characteristics normally indicative of hotel type accommodation, most notably a profit motive. It, however, placed much weight on the fact that the accommodation in Bruce House was provided as the main purpose.

The approach was approved, and developed, in the more recent case of Acorn Management Services Ltd (VTD 17338):

The appellant was a commercial organisation which made arrangements with US universities to provide accommodation for students who were visiting the UK, for an average period of 15 weeks, to attend courses. The accommodation provided was usually in the form of studio apartments designed for single occupancy, with catering facilities and a cleaning service.

The Tribunal ruled that the accommodation could be considered a ‘similar establishment’ giving weight to the following factors:

  • the appellant provides furnished sleeping accommodation, for gain, as its main purpose,
  • ‘the element of service provided by the appellant to the university seems to us to be quite different from the mere provision of accommodation which might characterise a conventional landlord/tenant relationship.’,
  • the appellant did not provide a communal or corporate atmosphere and way of living,
  • the rules of residence imposed by the appellant on the occupants were ‘more consistent with hostel or similar living than with the occupation of rented flats where, for example, a rule forbidding overnight guests would be unusual’, and
  • there were some dissimilarities with hotels, inns and boarding houses in that the accommodation lacked communal areas, and from the outside its physical appearance was that of a block of flats. But these differences were not enough to distinguish the nature of the accommodation from that provided by the hotel sector.

The fact that a whole property is supplied rather than just sleeping accommodation does not necessarily prevent it from being treated as a similar establishment. In Acrylux Limited (TC00173) a large house containing 22 bedrooms was hired out for weekend events, including weddings, on a self catering basis. Whilst clean linen, towels, crockery and cutlery were provided, other services were minimal (in most cases nothing more than cleaning between hires). However, the tribunal concluded that what was provided was essentially sleeping accommodation - the supply consisting of services normally provided by the hotel sector. For this reason it was appropriate to treat the property as a similar establishment. The position in Acrylux is exceptional and unlikely to arise very often. It can be distinguished from that in Asington Ltd (EDN/02/176) where an establishment containing a number of flats was supplied to a commercial customer. The tribunal concluded that it was the commercial customer and not Asington that supplied furnished sleeping accommodation to visitors or travellers. In addition, the fact that Asington supplied none of the services normally associated with hotels meant the premises could not fall within the definition similar establishment.