VAT and serviced accommodation
The subject of this post is whether serviced accommodation and AirBnB fall within the Tour Operators Margin Scheme.
This can significantly affect how much VAT the SA provider has to pay HMRC. The difference can be significant.
I first became aware of the VAT implications for providers of serviced accommodation (“SA”) about 10 years ago. It is a difficult subject, so for the purposes of this article, I have assumed that you have a basic knowledge of how VAT works. If you’re not sure, check out the introductory information on HMRC’s website.
Either way, the subject content of this post is difficult and you may want to fortify yourself with strong coffee and/or sweet tea
The main issues are as follows:
- Under normal VAT accounting, SA providers have to pay VAT on all of their income and are liable to register for VAT under the normal VAT registration rules; i.e. as and when their income exceeds the VAT registration limit, which is normally is £85,000 in the previous 12 months. This is called “in-house” supplies for VAT purposes.
- However in some cases, SA may fall within a specific VAT accounting scheme called the “Tour Operators Margin Scheme” (“TOMS”). Under this scheme, SA providers only have to pay VAT on the margin between the selling price and the cost of their margin scheme supplies. The SA providers cannot, however, claim VAT on any of their VAT bearing TOMS related costs. Finally, SA providers only have to register for VAT when the value of their margin exceeds the VAT registration limit. This is explained in VAT Notice 709/5 “The Tour Operators Margin Scheme”.
- Alternatively, SA providers may be able to use the VAT Flat Rate Scheme to calculate their VAT. In this case, the current VAT rate for hotel and similar accommodation is 10.5%.
What is the “Tour Operators Margin Scheme” (“TOMS”)?
The TOMS was originally introduced when we were a member of the EU. It was an EU wide simplification measure that enabled tour operators to sell holidays made of of a package of at least 2 items; e.g. travel and accommodation in different EU countries without having to register for VAT in those countries. The business would register for VAT only in the country in which it it is permanently resident and pay VAT on all of its EU wide TOMS supplies in that country.
One of the main criteria is that each of the TOMs supplies should not be “materially altered“. A good example of this is the block booking of hundreds of hotel rooms for the whole summer season and their subsequent resale as part of individual separate holiday packages for retail holiday makers is not regarded as material alteration of the supply of the accommodation. In fact, this is the type of “supply” that the TOMS is specifically designed to cover.
The relevant sections of VAT Notice 709/5 are set out at the end of this article.
Because of the way in which the scheme applies to SA/AriBnB supplies, there is a clear benefit for those SA operators whose business falls within the TOMS. I’ve explained this in more detail below*.
With the growth of the AirBNB industry and its’ proliference during the 2010s, I was occasionally asked for opinions from clients, most of whom were entering the SA (yes, when the phrase “AirBnB” entered the English lexicon!) business for the first time. Accounting for VAT under the TOMS can be significantly more profitable than normal residential lets. In most cases, they’d discussed the subject with other property owners/lessees and wanted me to confirm that their business fell within the TOMS.
The problem was that HMRC’s rulings on the issue seemed to be inconsistent. I’ve worked with clients whose businesses seem to be the same, in one case HMRC confirmsed that the TOMS applied while the other business was left to find around another £15k per annum under the normal VAT accounting rules. Typically no detailed explanation for this difference was give.
It’s now 2023 and the AirBnB market is again booming, so I’ve had to get out my SA wings again even if just to help one or two clients. But I have fully warned them that however their landlords’ lease is worded, this is no guarantee that HMRC will accept that the TOMS will apply.
Hopefully my previous experiences have at least given me at least a very strong health warning about the subject.
But before we get into the details, let’s just look at the difference in money terms that being in TOMS or using normal VAT accounting can mean.
*The difference in the figures
Below is a VERY basic example and doesn’t differentiate between SA providers who add VAT to their income and those who treat their income as VAT inclusive. It’s purely to show the very significant difference between normal VAT accounting and TOMS VAT accounting.
For this example, the annual income is £100,000, VAT inclusive.
- Their main cost is rent for their properties, which we’ll assume is £60k, VAT exempt per annum
- They both have VAT inclusive other costs – such as agent’s fees and cleaning services – of £10k per year. VAT amount £1,666.
Total VAT inclusive costs: £70k
Liability under TOMS
Income: £100,000
Less costs: £70,000
Margin: £30,000
VAT included @20% = £30,000 x 20/120 = £5,000.
BUT remember that if this is the business owner’s ONLY income, then it would not even have to register for VAT because the value of the margin falls below the VAT registration limit, which is currently £85,000. But I’ve shown the calculation below just to show how it works.
Liability under normal VAT accounting
VAT on income: £100,000: £16,667
Less VAT on purchases and expenses: £1667
Annual VAT liability: £16,667 – £1,667 = £15000
That’s a whopping saving of £15,000 a year!
Liability under FRS
- FRS – 10.5% for hotel acmd – £100,000 x £10.5% = £10,500.
Annual VAT liability under FRS: £10,500
There is a significant difference between the potential lowest VAT liability under TOMS and normal VAT accounting.
N.B. I am not particularly good at arithmetic so please feel free to let me know if you disagree with my figures…. so how do you decide whether or not your SA income falls within the TOMS?
Serviced accommodation is liable to VAT, like hotel accommodation
Under the law, it comes down to the issue of whether the services you provide services are “materially altered”. Let’s consider this in more detail.
What is “materially altered”
There is no definition of the term “materially altered”, but HMRC give detailed explanations of the difference between inhouse and TOMS suppliers. It’s contained in VAT Notice 709/5, paragraph 7.6 as follows:
“If you own a hotel and supply accommodation within it, you are making an in-house supply of accommodation.
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.
Also, if you buy in accommodation and provide catering staff from separate sources, for example a ski chalet with a chalet-maid, you are making an in-house supply, commonly referred to as ‘catered accommodation’.”
The main determining factor seems to be the middle paragraph, which explains when HMRC take the view that the service is “in-house”‘ i.e. that the supplier takes “responsibility for the upkeep of the property and you are required to undertake any maintenance to the fabric of the building….”..
Unfortunately HMRC doesn’t expand on the meaning of “upkeep of the property” or “maintenance to the fabric of the building..”, so it’s a bit of a guessing game for SA providers. However I understand that their normal definition of the term “fabric of the property” means the walls, roof, etc and anything contained within, such wiring/plumbing for electricity, gas, water etc. In my experience, this means that the landlord is ultimately responsible for ensuring that the building itself is in good condition and that the basic utilities are provided.
Otherwise, the most important factors would appear to be the extent to which the the terms of the SA “letting” reflects the landlord’s lease under a rent to rent arrangement.
So if you this into the perspective of the hotel block booking, the TOMS can apply to one or two night lettings, as long as the other criteria are met.
Important criteria: furnished or unfurnished?
There are any number of criteria that could affect this, but one very common aspect is whether or not the landlord’s lease is for furnished or unfurnished properties. HMRC’s position is that a supply is “inhouse”: ” 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) ……..”.
One significant issue this doesn’t cover is how this applies to situations where an SA operator rents an unfurnished property from a third party landlord and furnishes it for use either as residential letting or for SA accommodation. Given the context I would anticipate that their position would be that the provision of unfurnished and furnished properties is that the supply is “materially altered”.
One pointer to this is that HMRC includes the “rental of equipment and furniture” as a cost in their list of costs for in-house supplies (see para 7.7 extract below). Arguably this could change if the cost is the one-off purchase of equipment and furniture (including anything from cutlery to beds!). HOwever I would expect that such items would be removed at the end of any landlord’s lease, so it does seem difficult to argue that the nature of the “supply” is “materially altered”.
Factors
I’ve set out below a list of other factors that I believe can apply in establishing whether or not the supply of accommodation falls within the TOMS or is subject to normal VAT accounting.
- Definition of the the “fabric of the building”.
- Normally block booking by hotel operators would require the operator to return the property to the owner in the same condition as the start of this lease. So presumably this would include end of lease repairs, or decorating. Does this affect the application of the TOMS?
- Is the lease from the headland for a furnished or unfurnished property? If unfurnished, how is the property furnished – presumably by the lessor?
- SA operators often have a number of different properties leased from different landlords each with different leases but practical outcome the same. In practice, you’d have to review each lease to see if it wuold qualify.
- The main factor is the landlord’s lease, but the wording of the customer accommodation agreement may also be a factor.
- What is the current status in the HMRC manuals?
- You might assume that one simple way of dealing with this is to have each property operated under separate companies. However this could be regarded as VAT avoidance by HMRC as there are specific rules against the splitting business activities (or “disaggregation”) to avoid or minimise VAT liabilities.
- Exemption after 28 day rule for normal hotel accommodation.
In practice to review all of these issues is time-consuming and you need to understand the VAT rules in some detail to get.
This is one of those situations where, quite frankly, I’m often at a loss! Good luck!
I’ve set out below extracts from HMRC current guidance about the TOMS and the Flat Rate Scheme. These are included for guidance only, so please check the current guidance for up to date information.
Marie
April, 2023
Extracts from HMRC guidance
Flat rate scheme 10.5%
Eligibility
You can join the Flat Rate Scheme if:
- you’re a VAT-registered business
- you expect your VAT taxable turnover to be £150,000 or less (excluding VAT) in the next 12 months
VAT taxable turnover is the total of everything sold that is not VAT exempt.
Exceptions
You cannot use the scheme if:
- you left the scheme in the last 12 months
- you committed a VAT offence in the last 12 months, for example VAT evasion
- you joined (or were eligible to join) a VAT group in the last 24 months
- you registered for VAT as a business division in the last 24 months
- your business is closely associated with another business
- you’ve joined a margin or capital goods VAT scheme
You cannot use the scheme with the Cash Accounting Scheme. Instead, the Flat Rate Scheme has its own cash-based method for calculating the turnover.
Leaving the scheme
You must leave the scheme if:
- you’re no longer eligible to be in it
- on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) – or you expect it to be in the next 12 months
- you expect your total income in the next 30 days alone to be more than £230,000 (including VAT)
Late registration penalty if register/notify up to 3 months late because of uncertainty about liability under TOMS – probably £50.
VAT Notice 709/5 Tour Operators Margin Scheme
4.1 What taxable turnover is for VAT registration or de-registration purposes
If you’re considering whether you must register for VAT, or whether you may de-register, your taxable turnover is regarded as the total of:
- total margin on your taxable (including zero-rated) Margin Scheme supplies, for example your supply of arranging the Margin Scheme supplies
- full value of:
- taxable (including zero-rated) in-house supplies
- taxable agency commission
- any other taxable (including zero-rated) supplies you make in the UK
4.3 VAT you can reclaim on purchases
You may reclaim (outside TOMS) UK VAT incurred on your overheads and on purchases relating to your in-house supplies, subject to the normal rules see VAT guide (VAT Notice 700)
4.4 VAT you cannot reclaim
You cannot reclaim VAT on purchases that you make to resell as Margin Scheme supplies.
7.6 How an in-house supply of accommodation is made
If you own a hotel and supply accommodation within it, you are making an in-house supply of accommodation.
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.
What if you as supplier of acmd are responsible for internal decoration of the property? Cosmetic but is it maintenance?
Fabric of the building – would normally expect that this refers to external parts of the property, plus walls, ceilings, floors ett.
Also, if you buy in accommodation and provide catering staff from separate sources, for example a ski chalet with a chalet-maid, you are making an in-house supply, commonly referred to as ‘catered accommodation’.
Who does the cleaning? Could this prevent TOMS applying if acmd and cleaning from separate sources?
7.7 The usual direct costs of supplying in-house accommodation
In order to undertake the end of year TOMS calculation, you’ll need to work out the direct costs of in-house supplies that are provided as part of a Margin Scheme package (see paragraphs 6.5 and 7.8).
The following list of items has been provided in order to assist you in calculating the value of these costs:
- depreciation of buildings, fixtures and fittings, for which you or a member of your VAT group are liable (calculated on the same basis as your audited accounts)
- catering purchases
- heating and lighting
- rates
- building insurance
- rental of equipment or furniture
- repairs, maintenance and cleaning for which you are liable
- staff costs (including wages and employer’s National Insurance contributions)
This list in itself does not have force of law, but sections 8 to 13 of this notice do.
7.8 If premises are used to provide accommodation both inside and outside TOMS
Only the income and costs relating to in-house accommodation supplied with Margin Scheme supplies can be included in the TOMS calculations (the law relating to this is contained within the steps of the TOMS calculation, see section 8, section 9 and section 11 and paragraph 1(e) of TL5 in section 13).
If your premises are also used to provide accommodation outside TOMS, the annual direct cost of your accommodation must be apportioned to take account of this.
This apportionment should normally be on the basis of the number of guests or days booked for each type of supply.
It is also likely that some of the costs will relate to the whole premises (for example, rates, insurance, heating and lighting) even though certain parts of your premises are probably not used specifically to provide hotel accommodation (for example, administrative offices, public bars, private accommodation and so on). If so, these costs should be apportioned on the basis of the floor area for the various parts of the building. If you wish to adopt any other basis for the apportionment you should submit your proposed method in writing to HMRC in advance of when your year-end calculation or adjustment is due.
VAT and serviced accommodation
DRAFT FOR REFERENCE ONLY
NOT TO BE REPRODUCED IN WHOLE OR IN PART
I first became aware of the VAT implications for providers of serviced accommodation (“SA”) about 10 years ago. It is a difficult subject, so for the purposes of this article, I have assumed that you have a basic knowledge of how VAT works. If you’re not sure, check out the introductory information on HMRC’s website.
The main issue directly affects how much VAT the SA provider has to pay HMRC. The difference can be significant and it all depends on how the business is carried out.
The main issues are as follows:
- Under normal VAT accounting, SA providers have to pay VAT on all of their income and are liable to register for VAT under the normal VAT registration rules; i.e. as and when their income exceeds the VAT registration limit, which is normally is £85,000 in the previous 12 months. This is called “in-house” supplies for VAT purposes.
- However in some cases, SA may fall within a specific VAT accounting scheme called the “Tour Operators Margin Scheme” (“TOMS”). Under this scheme, SA providers only have to pay VAT on the margin between the selling price and the cost of their margin scheme supplies. The SA providers cannot, however, claim VAT on any of their VAT bearing TOMS related costs. Finally, SA providers only have to register for VAT when the value of their margin exceeds the VAT registration limit. This is explained in VAT Notice 709/5 “The Tour Operators Margin Scheme”.
The TOMS was originally introduced when we were a member of the EU. It was an EU wide simplification measure that enabled tour operators to sell holidays made of of a package of at least 2 items; e.g. travel and accommodation in different EU countries without having to register for VAT in those countries. The business would register for VAT only in the country in which it it is permanently resident and pay VAT on all of its EU wide TOMS supplies in that country.
One of the main criteria is that each of the TOMs supplies should not be “materially altered“. A good example of this is the block booking of hundreds of hotel rooms for the whole summer season and their subsequent resale as part of individual separate holiday packages for retail holiday makers is not regarded as material alteration of the supply of the accommodation. In fact, this is the type of “supply” that the TOMS is specifically designed to cover.
The relevant sections of VAT Notice 709/5 are set out at the end of this article.
Because of the way in which the scheme applies to SA/AriBnB supplies, there is a clear benefit for those SA operators whose business falls within the TOMS. I’ve explained this in more detail below*.
With the growth of the AirBNB industry and its’ proliference during the 2010s, I was occasionally asked for opinions from clients, most of whom were entering the SA (yes, when the phrase “AirBnB” entered the English lexicon!) business for the first time. Accounting for VAT under the TOMS can be significantly more profitable than normal residential lets. In most cases, they’d discussed the subject with other property owners/lessees and wanted me to confirm that their business fell within the TOMS.
The problem was that HMRC’s rulings on the issue seemed to be inconsistent. I’ve worked with clients whose businesses are l almost entirely the same, in one case HMRC confirmsed that the TOMS applied while the other business was left to find around another £15k per annum under the normal VAT accounting rules, for no discernible differene!
It’s now 2023 and the AirBnB market is again booming, so I’ve had to get out my SA wings again even if just to help one or two clients. But I have fully warned them that however their landlords’ lease is worded, this is no guarantee that HMRC will accept that the TOMS will apply.
Hopefully my previous experiences have at least given me at least a very healthy wariness about the subject.
But before we get into the details, let’s just look at the difference in money terms that being in TOMS or using normal VAT accounting can mean.
*The difference in the figures
Below is a VERY basic example and doesn’t differentiate between SA providers who add VAT to their income and those who treat their income as VAT inclusive. It’s purely to show the very significant difference between normal VAT accounting and TOMS VAT accounting.
For this example, the annual income is £100,000, VAT inclusive.
- Their main cost is rent for their properties, which we’ll assume is £60k, VAT exempt per annum
- They both have VAT inclusive other costs – such as agent’s fees and cleaning services – of £10k per year. VAT amount £1,666.
Total VAT inclusive costs: £70k
Liability under TOMS
Income: £100,000
Less costs: £70,000
Margin: £30,000
VAT included @20% = £30,000 x 20/120 = £5,000.
BUT remember that if this is the business owner’s ONLY income, then it would not even have to register for VAT because the value of the margin falls below the VAT registration limit, which is currently £85,000. But I’ve shown the calculation below just to show how it works.
Liability under normal VAT accounting
VAT on income: £100,000: £16,667
Less VAT on purchases and expenses: £1667
Annual VAT liability: £16,667 – £1,667 = £15000
That’s a whopping saving of £15,000 a year!
Liability under FRS
- FRS – 10.5% for hotel acmd – £100,000 x £10.5% = £10,500.
Annual VAT liability under FRS: £10,500
There is a significant difference between the potential lowest VAT liability under TOMS and normal VAT accounting.
N.B. I am not particularly good at arithmetic so please feel free to let me know if you disagree with my figures….
So how do you decide whether or not your SA income falls within the TOMS?
Well it comes down to the issue of whether the services you provide services are “materially altered”. Let’s consider this in more detail.
What is “materially altered”
So the issue is the difference between “in-house” and “TOMS” supplies? There is no definition of the term “materially altered”, but HMRC give detailed explanations of the difference between inhouse and TOMS suppliers. It’s contained in VAT Notice 709/5, paragraph 7.6 as follows:
“If you own a hotel and supply accommodation within it, you are making an in-house supply of accommodation.
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.
Also, if you buy in accommodation and provide catering staff from separate sources, for example a ski chalet with a chalet-maid, you are making an in-house supply, commonly referred to as ‘catered accommodation’.”
So HMRC view the provision of SA in the same way as hotel accommodation. The main determining factor seems to be the middle paragraph, which explains when HMRC take the view that the service is “in-house”‘ i.e. that the supplier takes “responsibility for the upkeep of the property and you are required to undertake any maintenance to the fabric of the building….”..
Unfortunately HMRC doesn’t expand on the meaning of “upkeep of the property” or “maintenance to the fabric of the building..”, so it’s a bit of a guessing game for SA providers. However I understand that their normal definition of the term “fabric of the property” means the walls, roof, etc and anything contained within, such wiring/plumbing for electricity, gas, water etc. In my experience, this means that the landlord is ultimately responsible for ensuring that the building itself is in good condition and that the basic utilities are provided.
Otherwise, the most important factors would appear to be the extent to which the the terms of the SA “letting” reflects the landlord’s lease under a rent to rent arrangement.
So if you this into the perspective of the hotel block booking, the TOMS can apply to one or two night lettings, as long as the other criteria are met.
There are any number of criteria that could affect this, but one very common aspect is whether or not the landlord’s lease is for furnished or unfurnished properties. HMRC’s position is that a supply is “inhouse”: ” 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) ……..”.
One significant issue this doesn’t cover is how this applies to situations where an SA operator rents an unfurnished property from a third party landlord and furnishes it for use either as residential letting or for SA accommodation. Given the context I would anticipate that their position would be that the provision of unfurnished and furnished properties is that the supply is “materially altered”.
One pointer to this is that HMRC includes the “rental of equipment and furniture” as a cost in their list of costs for in-house supplies (see para 7.7 extract below). Arguably this could change if the cost is the one-off purchase of equipment and furniture (including anything from cutlery to beds!). HOwever I would expect that such items would be removed at the end of any landlord’s lease, so it does seem difficult to argue that the nature of the “supply” is “materially altered”.
Factors
I’ve set out below a list of other factors that I believe can apply in establishing whether or not the supply of accommodation falls within the TOMS or is subject to normal VAT accounting.
- Fabric of the building. End of lease decorating
- Is the lease from the headland for a furnished or unfurnished property? If unfurnished, how is the property furnished – presumably by the lessor?
- Different landlords each with different leases but practical outcome the same.
- 2 aspects – landlord’s lease is the main factor here.
- HMRC manuals?
- Disaggregation issue if SA/non SA run from separate but associated businesses eg ltd companies or directors’ partnerships or directors as SPs.
- Exemption after 28 day rule for normal hotel acmd
Flat rate scheme 10.5%
Eligibility
You can join the Flat Rate Scheme if:
- you’re a VAT-registered business
- you expect your VAT taxable turnover to be £150,000 or less (excluding VAT) in the next 12 months
VAT taxable turnover is the total of everything sold that is not VAT exempt.
Exceptions
You cannot use the scheme if:
- you left the scheme in the last 12 months
- you committed a VAT offence in the last 12 months, for example VAT evasion
- you joined (or were eligible to join) a VAT group in the last 24 months
- you registered for VAT as a business division in the last 24 months
- your business is closely associated with another business
- you’ve joined a margin or capital goods VAT scheme
You cannot use the scheme with the Cash Accounting Scheme. Instead, the Flat Rate Scheme has its own cash-based method for calculating the turnover.
Leaving the scheme
You must leave the scheme if:
- you’re no longer eligible to be in it
- on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) – or you expect it to be in the next 12 months
- you expect your total income in the next 30 days alone to be more than £230,000 (including VAT)
Late registration penalty if register/notify up to 3 months late because of uncertainty about liability under TOMS – probably £50.
VAT Notice 709/5 Tour Operators Margin Scheme
4.1 What taxable turnover is for VAT registration or de-registration purposes
If you’re considering whether you must register for VAT, or whether you may de-register, your taxable turnover is regarded as the total of:
- total margin on your taxable (including zero-rated) Margin Scheme supplies, for example your supply of arranging the Margin Scheme supplies
- full value of:
- taxable (including zero-rated) in-house supplies
- taxable agency commission
- any other taxable (including zero-rated) supplies you make in the UK
4.3 VAT you can reclaim on purchases
You may reclaim (outside TOMS) UK VAT incurred on your overheads and on purchases relating to your in-house supplies, subject to the normal rules see VAT guide (VAT Notice 700)
4.4 VAT you cannot reclaim
You cannot reclaim VAT on purchases that you make to resell as Margin Scheme supplies.
7.6 How an in-house supply of accommodation is made
If you own a hotel and supply accommodation within it, you are making an in-house supply of accommodation.
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.
What if you as supplier of acmd are responsible for internal decoration of the property? Cosmetic but is it maintenance?
Fabric of the building – would normally expect that this refers to external parts of the property, plus walls, ceilings, floors ett.
Also, if you buy in accommodation and provide catering staff from separate sources, for example a ski chalet with a chalet-maid, you are making an in-house supply, commonly referred to as ‘catered accommodation’.
Who does the cleaning? Could this prevent TOMS applying if acmd and cleaning from separate sources?
7.7 The usual direct costs of supplying in-house accommodation
In order to undertake the end of year TOMS calculation, you’ll need to work out the direct costs of in-house supplies that are provided as part of a Margin Scheme package (see paragraphs 6.5 and 7.8).
The following list of items has been provided in order to assist you in calculating the value of these costs:
- depreciation of buildings, fixtures and fittings, for which you or a member of your VAT group are liable (calculated on the same basis as your audited accounts)
- catering purchases
- heating and lighting
- rates
- building insurance
- rental of equipment or furniture
- repairs, maintenance and cleaning for which you are liable
- staff costs (including wages and employer’s National Insurance contributions)
This list in itself does not have force of law, but sections 8 to 13 of this notice do.
7.8 If premises are used to provide accommodation both inside and outside TOMS
Only the income and costs relating to in-house accommodation supplied with Margin Scheme supplies can be included in the TOMS calculations (the law relating to this is contained within the steps of the TOMS calculation, see section 8, section 9 and section 11 and paragraph 1(e) of TL5 in section 13).
If your premises are also used to provide accommodation outside TOMS, the annual direct cost of your accommodation must be apportioned to take account of this.
This apportionment should normally be on the basis of the number of guests or days booked for each type of supply.
It is also likely that some of the costs will relate to the whole premises (for example, rates, insurance, heating and lighting) even though certain parts of your premises are probably not used specifically to provide hotel accommodation (for example, administrative offices, public bars, private accommodation and so on). If so, these costs should be apportioned on the basis of the floor area for the various parts of the building. If you wish to adopt any other basis for the apportionment you should submit your proposed method in writing to HMRC in advance of when your year-end calculation or adjustment is due.