VAT CUT
Short-term VAT cut for long stays VAT on long-stays in hotels – and the impact of the 5% reduced rate of VAT
T
he Chancellor’s Summer Economic Statement included a temporary VAT cut for from 20% to 5%, from 15 July 2020 to 12 January 2021, but what does it mean for long stays?
Summary • VAT is due on the first 28 days as normal. • From day 29 onwards (assuming it is not holiday accommodation) the accommodation element is VAT-free (but still bears an entitlement to VAT recovery on costs), other services are subject to the normal VAT rules. • If quoting an inclusive rate then a value has to be attributed reasonably between accommodation and other services. • From day 29 onwards at least 20% of an inclusive stay amount is deemed to be for facilities (which is subject to the reduced rate during the relevant period) along with any part of the inclusive rate that is attributable to meals and drinks (at 5% during the temporary reduced rate period assuming alcoholic beverages or other excluded food items are not included in the inclusive package, or 20% normally). The official guidance is reproduced here: https://www.gov.uk/guidance/hotelsholiday-accommodation-and-vat-notice7093#section3
3. Long stay guests 3.1 Reduced value rule This rule allows the charge for the actual sleeping accommodation element of the supply to be relieved from VAT when a guest stays for over 28 consecutive days. But the supply of accommodation does not become exempt from VAT, it is still taxable and the normal input tax rules
apply. As such, the reduced value rule operates differently from the temporary reduced rate for VAT as it operates to relieve part of the charge for the supply from VAT as opposed to reducing the rate of VAT charged. 3.2 How the reduced value rule works You need to establish that you’re providing accommodation in a hotel, inn,
Example calculation for a room-only rate of £100 net: • Days 1-28 VAT = £100 x 5% = £5 (previously £100 x 20% = £20) • Day 29+ VAT = £20 x 5% + £80 x 0% = £1 (previously £20 x 20% = £4)
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THE OVERVIEW | SEPTEMBER 2020
