It’s certainly seems that serviced accommodation (“SA”) is the noisy kid in town at the moment; particularly in connection with the Tour Operators Margin Scheme (TOMS).  If you’re not familiar with the TOMS, it’s a scheme for holiday operators to calculate VAT on their sales.  Serviced accommodation and the TOMS are very common topics.

Tour Operators Margin Scheme

Before we get into the technical details, remember the main points of the TOMS:

  • The scheme primarily exists so that tour operators, holiday companies etc don’t have to register for VAT in every EC country they buy TOMS services, e.g. holiday accommodation for a package holiday.  They only have to register for VAT in the country from which their business is run.
  • The TOMS applies to “bought in” accommodation and travel, with certain other services such as trips and car hire.
  • You can’t claim any VAT charged, whether by UK or non-UK suppliers.
  • However you only pay VAT on the profit margin of your selling price.
  • Services provided from your own resources (e.g. if you  run your own hotel rather than buying in hotel accommodation) are treated under normal VAT rules.  These services are called “inhouse” supplies.
  • If you sell both TOMS and inhouse supplies, you have to apportion your sales price so that you can calculate VAT separately on TOMS supplies and inhouse supplies.
  • For VAT registration purposes, you only include the profit margin of your TOMS sales, not the full value of the TOMS sales.

When does serviced accommodation fall within the TOMS?

In most cases, if you buy in and sell on any sort of hotel accommodation, this would fall under the TOMS.  For VAT purposes, SA is treated like hotel accommodation, so providers of SA may find that some or all of their sales fall under TOMS.

But what exactly is “accommodation” and how do you know if it applies to your business?

We normally think of accommodation as somewhere to live and particularly sleep.  However, when it comes to TOMS, HMRC clearly takes the that there are different interpretations of the word for leased property that determine whether leased property falls within the TOMS or not.
Unfortunately, you have to dig a bit deep to find what I assume to be the correct answer.  This is because there isn’t a specific definition of “rent” or the word “accommodation” in VAT Notice 709/5 “Tour Operators Margin Scheme”
But you can infer HMRC’s approach from the wording of section 7.6 and the following sentence:
If you hire, lease or rent accommodation under an agreement whereby you take responsibility for the upkeep of the property and you are required to undertake any maintenance to the fabric of the building (that is, not just cleaning and changing towels or bed linen and so on), you are making an in-house supply of accommodation. 
This sounds to me like a “tenant’s repairing lease”, which makes sense if this is regarded as an “in-house” supply.
So how does that help us with other kinds of lease?  Well it seems to me that the rent would fall within the TOMS in the opposite situation; i.e. where the landlord is responsible for the upkeep of the property and is required to undertake any maintenance to the fabric of the building.  This sounds to me like a “landlord’s repairing lease”, which again would make sense as a “bought-in” service.
But that’s only my opinion.  The TOMS is, at the best of times, complicated and it’s difficult for businesses who are new to the subject – never mind new to the SA business – to categorize their expenditure.  You can get some helpful guidance from the Notice about different types of expenditure, but in practice businesses usually have to make an informed “guess”.  HMRC will, of course, help in specific situations but as a consultant, I think it would be very helpful if HMRC updated Notice 709/5 to clarify whether rent and other common expenditure falls within the TOMS.
In the meantime, it seems that we’ll be asking questions about how serviced accommodation and the TOMS work together for the time being.
July, 2018

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