BB/15A/06 VAT—the reduced value rule for long-stay guests in hotels—revised interpretation of the law on VAT treatment
Business Brief, Issue 15. 27 September 2006
This Business Brief article announces a change in HM Revenue & Customs' (HMRC) interpretation of the law regarding the application of the reduced value rule for long-stay guests in hotels. This change has been incorporated in an update to VAT Notice 709/3 “Hotels and Holiday Accommodation” (Part V8), issued recently.
The change affects the treatment of supplies of overnight accommodation made by hotels (which includes inns, boarding houses and similar establishments), where the accommodation is provided to individuals for periods exceeding 28 days. Stays of up to and including 28 days are unaffected by the change and will continue to be subject to VAT at the standard rate.
Background
Many people, for a variety of reasons, “live” in hotels or similar establishments for long periods. As the exemption from VAT for supplies of residential accommodation (for example in houses and flats) does not extend to the accommodation provided by hotels, such people would be disadvantaged. In order to provide greater consistency of treatment, a special valuation rule has the effect of treating supplies of accommodation by hotels as VAT-free from the 29th day of a person's stay. The rule (often referred to as “the reduced value