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 optimise their VAT payments and bolster their bottom line.
Until next time ...
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about VAT and Rent To Serviced Accommodation, it may be a great idea to give me a call on 01908 774323 and let's see how I can help.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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