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HMRC internal manual

VAT Land and Property

Hotels and similar establishments (Item 1d): homeless people and asylum seekers


As a general rule, homeless people and asylum seekers are not considered to be ‘visitors or travellers’ for the purpose of Note 9, but people who are temporarily without a permanent place of residence. Some examples of the types of accommodation commonly provided for the homeless and asylum seekers are set out below. These are intended to illustrate the general principles to be applied in establishing the liability of supplies.

Example 1: Hotels subject to block bookings by local authorities

A city centre hotel at the lower end of the market provides accommodation to people referred by local authorities. The local authorities block book a number of rooms which, under the agreements, are paid for whether or not they are occupied. The hotel prefers these bookings as they provide guaranteed income. The rooms are basic in nature. The services and facilities provided are minimal, comprising room cleaning, reception/booking service and 24-hour attendance by proprietor or member of staff. A cooked or continental style breakfast is available.

Although predominantly used by people referred by local authorities, the hotel is still held out for use by visitors and travellers. It is therefore in competition with other hotels. Although offering only a minimal range of services, these are consistent with the hotel trade. Despite the local authority bookings the establishment still operates as an hotel and the provision of accommodation falls within Group 1, Item 1(d) and is standard rated.

Example 2: Houses converted to multi-occupancy establishments

A number of houses have been converted for use by the homeless. They typically consist of upwards of five rooms and are often referred to as hostels. The rooms accommodate from between 1 and 4 people all referred by local authorities (the larger rooms are intended for family groups). All rooms are lockable and contain cooking and eating facilities. The owner will either have a written contract with the local authority or will receive periodic work orders detailing requirements. They may also have block-booking arrangements with a number of different local authorities in place. The provision of services is minimal, amounting to little more than a weekly surface clean of rooms. Bed linen is provided at the commencement of the stay. Food is provided in the form of a food package. There are no communal areas but a member of staff, normally a live-in manager, is present at all times. An invoice is issued to the local authority on a monthly basis.

In this case, the premises are exclusively used by local authorities. However, despite the very minimal services provided and the fact that breakfast comes in the form of a food package, the supply is similar to that provided in bed and breakfast establishments, albeit at the lower end of the market, and it is normal to see these as in competition with hotels, inns and boarding houses. The live in manager or nominal 24-hour presence of ‘staff’ is indicative of ‘hotel’ type accommodation. The supply is one of accommodation in a similar establishment and is standard rated.

Example 3: Accommodation provided in annexes

Similar to ‘2’ above. The accommodation in this case, however, is provided in a number of what are often referred to as annexes. The operator has acquired a number of large, four to five bedroom houses. These have been converted to comply with local authority specifications and include lockable doors and basic cooking facilities.

Under contracts with local authorities the operator provides, accommodation and facilities for breakfast at an agreed rate. The accommodation comprises of a room, bed, linen, cooking facilities and food (eggs, milk, cereals, bread and butter normally delivered on a weekly basis) sufficient for the guest to prepare breakfast. There are no communal facilities. The services provided are minimal, comprising only of the clean linen at the start of the stay and a weekly surface clean. A representative of the owner is not generally present on the premises, but it is usual for them to make periodic visits and to be available to guests should the need arise (a feature not normally present in a landlord and tenant relationship). Invoices are issued to the local authorities on a monthly basis and state the supply as being ‘bed and breakfast’.

The treatment in such cases is marginal. It should be noted that as the annexes are used exclusively by people referred by local authorities and are not used or held out for use by visitors or travellers, treatment under Note 9 is inappropriate. Treatment as a ‘similar establishment’ is therefore dependent on whether services similar to traditional ‘bed and breakfast’ are being provided and on the nature of the accommodation itself. Other important factors to take into account are whether there is a rule preventing overnight guests (such a rule is again unusual in a landlord/tenant relationship) and also whether there is an expectation, particularly by the local authority, that people will move on once permanent accommodation is found.

In the majority of such cases there will be reasonable grounds for concluding that the establishment is in competition with the ‘hotel’ sector and that despite the minimal services, treatment as a similar establishment is appropriate. The description of the service as ‘bed and breakfast’, even though the breakfast provided is very basic, is also indicative of a ‘similar establishment’.

Example 4: Hostel accommodation provided to a local authority

A hostel comprising of a number of rooms and with a maximum total occupancy of up to 20 persons provides accommodation to persons referred by local authorities under block booking arrangements. No guest register is maintained.

The contract with the local authority is for bed and breakfast, but the food is provided in the form of a supermarket voucher. These are purchased by the operator and given to the guests on a weekly basis. Cooking facilities are provided in each room. In the case of asylum seekers, operators are also under an obligation to provide a variety of other services, such as transportation to the hostel, advice on medical and other emergency services and translation services.

The additional services, although part of a single supply, are not seen as typical features of either domestic accommodation or accommodation within an hotel or ‘similar establishment’. This is because they are specific to the needs of asylum seekers and not supplies normally associated with accommodation. Such services are rudimentary, amounting in most cases to little more than the initial transportation from a reception centre to the accommodation and a list of telephone numbers for doctors’ surgeries and dentists. They should therefore be ignored when considering whether the supply is one of accommodation in a ‘similar establishment’. In this example, services of a type normally provided in an ‘hotel’ are non-existent.

In addition, although breakfast is required under the contract it comes in the form of a supermarket voucher. Clearly, the level of service attached to providing a voucher is negligible. In addition, it would not be seen as usual for breakfast in an hotel or boarding house to be provided in this way. The supply is one of domestic accommodation in a dwelling, which is exempt from VAT.

Example 5: Accommodation provided by letting agents

Furnished houses and flats are supplied through a letting agent. The supply will be of ‘bed’ only, though breakfast may be provided in the form of food parcels. The accommodation is provided to local authority residents on a short-term basis. In ‘bed only’ cases the trader will normally have an agreement with the council to have properties available at a pre-agreed weekly rent. Despite the intended short term nature of the accommodation tenants might stay for several months or even years. The operator insists that under the terms of the agreements the local authorities have sole rights to fill the accommodation. In return they still get paid if the accommodation remains vacant. No services or facilities are provided. Invoices are issued to local authorities on weekly or monthly basis.

The absence of services and the fact that accommodation is provided in houses or flats means that such accommodation should not be treated as being in a ‘similar establishment’. This applies whether or not food parcels are provided. The houses and flats are not used or held out for use by visitors or travellers so treatment under note 9 as serviced flats would not be appropriate. The accommodation is seen as similar to that provided in houses and flats to students. Whilst a formal tenancy is not granted and the occupation may be short term (both features of some student accommodation) the provision shares little similarity to ‘hotel’ accommodation - there are no rules preventing overnight guests, no management on site or any physical resemblance to an hotel or similar. The charges to the local authority should be treated as consideration for an exempt supply of domestic accommodation.

Example 6: Accommodation for asylum seekers in houses, flats and hostels

Similar to ‘5’ above. This time accommodation is provided specifically for asylum seekers via contracts between the Home Office and the accommodation providers (both local authorities and private businesses). Accommodation providers often sub-contract to local landlords, housing associations and other property owners, who provide accommodation in either houses/flats or hostels.

A typical house will be shared by four persons and in some cases rooms themselves will be shared. Doors might contain locks where local authority rules allow and the accommodation will be subject to a range of safety and health checks prior to being deemed suitable. The services provided are minimal, amounting to no more than the cleaning of common areas (not individual rooms). All asylum seekers sign an individual occupancy agreement and are granted an interest in land superior to a licence to occupy. No landlords or representatives of the landlord remain on site (including hostels). Clean linen is provided at the outset of the stay, but no laundry service is provided. In some cases asylum seekers are provided with a washing machine in order to undertake their own laundry. The houses include cooking facilities, but no food is provided. Some houses are reserved for ‘family’ occupation. In such cases the services provided are identical. A number of additional services are required under the contracts, such as translation services, transport, etc.

The accommodation in houses, flats and hostels is similar to student type accommodation and a number of factors point towards the supply being one of domestic accommodation. For example, no food is provided and service provision is virtually non-existent. In addition, the houses and flats bear little physical similarity to hotel or bed and breakfast accommodation and in some cases occupants are expected to undertake responsibilities such as grass cutting. The individual occupancy agreements are indicative of domestic accommodation. Although accommodation is provided in establishments described as ‘hostels’, the services provided and the features of the accommodation are identical to that for houses and flats. In all cases the supplies would not be seen to fall in Schedule 9, Group 1, Item 1(d) and would be exempt from VAT.

Example 7: Accommodation for asylum seekers in hotels

Similar to Example 6, but this time accommodation is provided in hotels. In addition to the sleeping accommodation a full range of services, of a kind normally expected in hotels, is provided. Restaurant facilities are also available. Under the terms of the contract with the Home Office the hotels must be for the exclusive use of asylum seekers.

Even though the hotel is not available to ‘other’ guests the supply is of hotel accommodation and subject to VAT.

Where, despite the above examples, it is necessary to refer to Advisory Team for a ruling, please provide as much information as possible about the nature of the supply. You should also obtain copies of relevant contracts and agreements along with a general description of the premises.

Is the supply of Bed and Breakfast always a single supply?

Local authority contracts for housing homeless people often require the provision of bed and breakfast. Breakfast can be provided in the form of a prepared meal, food parcel or supermarket vouchers. The food element, in whatever form, is seen as incidental to the main supply of accommodation and follows the same liability.

The same treatment would apply where the food is a normal component of the advertised charge. In a small number of cases a proprietor may provide food even though it is not a requirement under the contract or a normal component of the nightly charge. Where a separate charge is made this should be treated as consideration for a zero rated supply of food. If there is no consideration, and nothing is expected in return , the provision of the food is seen as outside the scope of VAT. In other cases the business gift rules may apply.