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HMRC internal manual

VAT Valuation Manual

Special valuation provisions: reduced - rate accommodation - Paragraph 9, Schedule 6, VATA 1994

Paragraph 9 of Schedule 6 to the VATA 1994 provides:

9(1) This paragraph applies where a supply of services consists in the provision of accommodation falling within paragraph (d) of Item 1 of Group 1 in Schedule 9 and -

(a) That provision is made to an individual for a period exceeding 4 weeks; and

(b) Throughout that period the accommodation is provided for the use of the individual either alone or together with one or more other persons who occupy the accommodation with him otherwise than at their own expense (whether incurred directly or indirectly).

(2) Where this paragraph applies -

(a) The value of so much of the supply as is in excess of 4 weeks shall be taken to be reduced to such part thereof as is attributable to facilities other than the right to occupy the accommodation; and

(b) That part shall be taken to be not less than 20 per cent.

Whether accommodation meets the criteria within Item 1(d) Group 1 of Schedule 9 VATA 1994 (the provision of accommodation in an hotel, inn, boarding house or similar establishment) is the responsibility of the VAT Liability team.

Once you have established that the accommodation is of such a type, there are several conditions that have to be met for the reduced value rule to apply.

(a) The accommodation must be provided to an individual who personally occupies a room. If there are other occupants that are not charged, this will not prevent the operation of the reduced rate rules. A private domestic arrangement, for example between friends who share the cost of a room, will also not affect entitlement to the reduced value.

(b) The payment for the supply may be made wholly or partly by a company or other body. The most common situation you are likely to encounter is that of a local authority paying for homeless persons’ accommodation. As long as the accommodation is occupied by the same individual for a period exceeding 4 weeks, the reduced value rule will apply. This is the case even where the supply is made directly to a Local Authority who then places the individual in the accommodation.

(c) The occupation of the accommodation must be continuous. There are three specific instances where absence from the accommodation can be ignored for continuity purposes:

(i) where a long-term resident leaves for an occasional weekend or holiday

(ii) where a student leaves for the vacation but will be returning to the same accommodation for the next term, or

(iii) where a retaining fee is paid.

In these cases, VAT will only be payable in full for the initial 4 weeks of the overall stay. It does not matter whether or not the guest returns to the same room but - we normally expect the accommodation to be provided in the same premises. We would, however, see the occupation as continuous where the change of premises is within the local area and it is at the instigation of the hotel and the supply continues to be made by the same person.

On the other hand, regular breaks would prevent the supply being viewed as continuous. Someone who occupied a room from Monday to Thursday each week and returned home every weekend would not qualify. Similarly, someone who occupied the room for only 3 weeks in every month would not qualify for the reduced rate.

Where there are interrupted periods of occupancy exceeding 4 weeks, full VAT will be payable for each 4-week “starting-period”. For example, if someone stays for 5 weeks, leaves for a week and returns for another 5 weeks, the reduced value rule only applies to the fifth week of each separate stay.

(d) The rule will not apply to bookings made by companies where the rooms are used by successive occupants who each stay for less than 4 weeks.

Where the above criteria are satisfied, the reduced value rule can be applied from the 29th day of occupancy. Two points should be borne in mind:

  • The supplier of the accommodation is able to account for VAT on the reduced value whether or not he reduces the charge to the occupant of the accommodation.
  • The supply of accommodation, as distinct from any supplies of catering or facilities, always remains a standard-rated supply, it is not exempt. Occasionally, traders have argued that, if they separately charge for all facilities, then the supply of accommodation remaining is exempt. Alternatively, they have argued that the accommodation supply is exempt because there are no facilities at all. These arguments should be rejected - if the accommodation satisfies the criteria of Item 1(d), Group 1, Schedule 9 it is standard-rated irrespective of what, if any, facilities provided.

The reduced value rule operates by providing that at least 20% of the value of the supply of the accommodation has to be treated as being attributable to facilities, VAT being due upon that 20%. This means that, even if there were no facilities other than the “bare supply” of accommodation, 20% of the value of the supply should still be treated as if facilities existed.

Where separate charges are made for the accommodation and the various facilities, VAT will be due on 20% of the accommodation charge and all separate charges that are standard-rated.

Where a single charge covers both the accommodation and the facilities, it must be apportioned and VAT charged on the full amount that does not relate to accommodation. After the proportion of the charge that relates to meals, drinks and services has been calculated, at least 20% of the remainder is to be treated as being attributable to facilities. If the value of the facilities actually exceeds 20% of the remaining amount, then VAT is due upon that higher value.

Examples of the reduced value calculations are in Notice 709/3 (HMRC website) Hotels and holiday accommodation