16 July 2012
Hotel accommodation is normally subject to 20% standard rate VAT. However, there are some important exceptions to this rule, which can result in significant VAT savings.
It is widely known that a reduced rate of VAT, which can be as low as 4%, applies to sleeping accommodation provided to an individual, to the extent that the stay exceeds a continuous period of 28 days. This could be particularly relevant during the Olympic and Paralympic games. It is not always appreciated that, in certain circumstances, the reduced rate of VAT can still apply where there is a break during the period of the stay.
The supply of conference/function facilities is normally VAT exempt (unless primarily for the purposes of catering). However, unlike many other taxes, exemption is not always good news when it comes to VAT. This is because VAT incurred on costs used (or partly used) in making exempt supplies is not normally reclaimable. Only being entitled to partial recovery of VAT on costs can be a particular issue when VAT is incurred on capital expenditure.
There is, however, an alternative to making exempt supplies, which is for the business to make an ‘option to tax’. ‘Opting’ means that such supplies become subject to standard rate VAT, which in turn secures recovery of VAT on related costs. Deciding whether to make the option is an important decision. Once made, it cannot normally be revoked for at least 20 years. Therefore professional advice should be sought.
Our specialist VAT team will be happy to review your VAT accounting to ensure that your business is maximising its VAT efficiency. Should you wish to discuss the above or any other VAT matters, please contact Robert Facer.