VAT Q&A: 28-day rule and longer term Airbnb stays
In our regular Q&A series from Croner Taxwise, Janis Kirkham, VAT advice consultant, Croner Taxwise, considers VAT compliance issues relating to the 28-day rule for longer stays in Airbnb
7 May 2019
Q. My client runs a small bed and breakfast (B&B) and a furnished apartment which to date has been let on an Airbnb basis with a daily linen change and cleaning service. Normally they would account for VAT on all of these stays. Now they have received an enquiry from a construction company about exclusive use of both for a period of 12 months to house some of its employees working away from home. Should VAT still be charged?
A. VAT Act 1994 (VATA 1994) Schedule 9 Group 1 exempts the grant of a licence to occupy land. However, item 1(d) excludes from the exemption the ‘provision in a hotel, inn, boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation …’
Note 9 expands on this, giving the meaning of ‘similar establishment as ‘premises in which there is provided furnished sleeping accommodation, whether with or without the provision of board or facilities for the preparation of food, which are used or held out as being suitable for use by visitors or travellers’.
It follows therefore that both the B&B and the serviced apartment are caught by this exclusion from the exemption. When let on a temporary short-term basis they are subject to VAT, unlike the leasing of residential property, which is exempt.
Where B&B accommodation is let on a longer term, VATA 1994 Sch 6 para 9 provides some relief from VAT for stays of over 28 days –‘the reduced value rule’.
This provides that VAT is due in full for the first four weeks, and the reduction then applies for the rest of the stay, with no VAT due on the accommodation element, but due in respect of services. The value attributed to the services must be at least 20% of the original room charge.
Although the value of the accommodation element becomes nil for VAT purposes after 28 days, it does not become an exempt supply; it is still taxable and the normal input tax rules apply.
The reduced value 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, but will apply where individual employees stay for more than 28 days and a retaining fee is paid to cover any weekends away.
In respect of the apartment, then if this is being let longer term the client could enter into a formal tenancy agreement under the Landlord and Tenants Act 1954 and exempt the supply. They should keep a copy of the tenancy agreement or similar evidence to show that the accommodation was occupied for residential purposes only. Any separate cleaning service offered will be standard rated.
About the author
Janis Kirkham is a VAT advice consultant at Croner Taxwise advice lines Tel: 0844 892 2470
This article first appeared on Croner Taxwise Library VQOTW: 28-day rule