With so many property entrepreneurs considering SA, we thought a quick overview of how VAT works in relation to this strategy would be useful.

As SA is not an exempt supply of rented property, VAT registration will be required when turnover exceeds the mandatory registration threshold (currently £85,000), but all SA providers will need to understand the VAT rules for long stay guests, so here’s the abridged overview.

What is the reduced value rule?

This rule allows the charge for sleeping accommodation to be relieved from VAT when a guest stays for over 28 consecutive days. However, the supply of accommodation does not become exempt from VAT, it is still taxable and the normal input tax rules apply.

How does it work?

You need to establish that you are providing accommodation in a hotel, inn, boarding house or similar establishment. The reduced value rule does not apply to holiday accommodation.

If a guest stays in your SA for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.

If you make an inclusive charge for bed and board you must apportion it reasonably and charge VAT on the full amount that is not for the accommodation. When you do this, you must calculate the amount of your charge that is for laundry, other services including meals and drinks, and also treat at least 20% of the remainder as being for facilities. However, if the true value of the facilities is more than this, you must charge VAT on the true amount.

Who does the rule apply to?

The reduced value rule applies to individuals who stay with you for more than 28 days in a hotel, inn or any similar establishment (either alone, or together with one or more other individuals who stay otherwise than at their own expense).

The rule does not apply to bookings by companies where the accommodation is used by a succession of short-term occupants, and each stay is less than 29 days at a time. For example, it does not apply where airlines make block bookings of hotel accommodation for crew stopovers. However, where the supply is made to someone other than the individual who will be using the accommodation, but the stay by the individual is for more than 28 days, then the rule will apply.

A guest’s stay must be continuous to qualify for the reduced value rule. For example, if a guest stays for three weeks every month, you must always charge them VAT in full. If another guest stays for five weeks, leaves for a week, and returns to stay for five more weeks, the reduced value rule applies only to the fifth week of each separate stay.

However, a guest’s departure is not seen to end their stay provided the guest:

  • is a long-term resident and leaves for an occasional weekend or holiday
  • is a student who leaves during the vacation but returns to the same accommodation for the following term, or
  • pays a retaining fee

In these cases the time away is ignored and you only have to charge VAT in full for the first 28 days of the overall stay.

It does not matter whether the guest returns to the same room or not.

Complete Guidance Note

If you want to read the whole of the VAT guidance, the link is here or contact us.

Next steps

This is merely an overview and not professional advice; If you want more details or have further questions, then please contact Ian Spreadbury on 0781 300 9882. Or 02088905707, or