VAT For The Rent To Serviced Accommodation Business Model

In the ever-evolving world of taxation, the recent Sonder Europe Ltd vs HMRC case has emerged as a pivotal moment for businesses in the UK's Rent to Serviced Accommodation sector ...

This landmark case, decided in July 2023, has illuminated the VAT implications for this specific business model, offering both challenges and opportunities for industry players because the UK mandates a 20% Value Added Tax (VAT) on the provision of holiday accommodation.

"Yet, there's a silver lining in the form of the Tour Operators' Margin Scheme!"

TOMS allows businesses to pay VAT only on the margin, which is the difference between the selling price and direct costs like rent and cleaning. This effectively reduces the VAT payable, especially for businesses that can leverage TOMS.

The Sonder Europe Ltd v HMRC case delved deep into whether the Rent to Serviced Accommodation business model qualifies for TOMS. Sonder Europe Ltd, a provider of short-term accommodation, made a compelling argument for their eligibility for TOMS, which would lead to reduced VAT payments.

The First-tier Tribunal sided with Sonder Europe Ltd, acknowledging that their services fit within the TOMS framework. This means that instead of the standard 20% VAT rate, they could pay VAT based on the margin.

However, it's essential to note that First Tier Tribunal decisions don't set a precedent. The case's foundation was EU Laws applicable at the time, and HMRC might appeal or present further cases.

For businesses in the Rent to Serviced Accommodation sector, this case opens the door to potential VAT savings through TOMS. Given that rent is a significant expense, TOMS can lead to considerable VAT reductions.

For businesses looking to harness the potential benefits of this case, here's a roadmap:

- Know Your Business: Ensure your business model aligns with the criteria that made Sonder Europe Ltd eligible for TOMS
- Assess Direct Costs: Identify all direct costs, from rent to maintenance, crucial for VAT margin calculations
- Determine the VAT Margin: Subtract direct costs from your selling price
- Apply TOMS VAT Rate: Calculate the VAT due based on the margin
- Document Everything: Maintain comprehensive records for compliance and potential audits

The Sonder Europe Ltd vs HMRC case has reshaped the VAT landscape for the Rent to Serviced Accommodation business model. By understanding and adapting to these changes, businesses can optimize their VAT payments and bolster their bottom line.

If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.