flats

VAT on hostels and guest rooms

What this means for housing associations

Adam Cutler, Director, VAT and Customs Duty Services
02/02/2022
flats

A recent tribunal decision on the treatment of hostels may enable some housing associations to improve their VAT recovery. It also provides further clarity on the VAT treatment of guest rooms.

Background into the matter

In City YMCA Limited, the First-tier Tribunal has decided that their accommodation should be treated as similar to a hotel. This treatment is generally beneficial to housing providers as special rules apply to long-staying guests in hotels, such that VAT recoverable on costs can exceed the VAT due on the charges.

HMRC argued that the accommodation was not being marketed to the travelling public so was not in competition with the hotel sector. However, the tribunal held that the correct test was whether the alternative accommodation available to residents was likely to be a hotel or bed-and-breakfast. In this case, the tribunal expected that the local authority would likely have had to house the young people in this way had the YMCA not been available.

What does this mean for housing associations?

Some housing associations who own hostels, foyers and similar buildings should reconsider whether their property is also similar to a hotel.

Many more associations have some properties with guest rooms. Treatment of these varies, but those who have concluded that the charges are exempt because only guests of residents can stay in them may need to reconsider if the test should be “where else would these guests stay?” As with hostels, the VAT now due on income may be less than the additional VAT recoverable.

Further information

Please get in touch with Adam Cutler or your usual Crowe contact if you wish to discuss any of the above issues further.

Insights

HMRC has confirmed its policy on the VAT treatment of sale and leaseback transactions following Supreme Court decision in Balhousie earlier this year.
Detailed IR35 rules for smaller housing associations.
The Financial Reporting Council (FRC) reviews FRS102 on a periodic basis and has recently commenced this process.
We look at what has changed with the temporary extension and provide our recommendations.
HMRC has confirmed its policy on the VAT treatment of sale and leaseback transactions following Supreme Court decision in Balhousie earlier this year.
Detailed IR35 rules for smaller housing associations.
The Financial Reporting Council (FRC) reviews FRS102 on a periodic basis and has recently commenced this process.
We look at what has changed with the temporary extension and provide our recommendations.

Contact us

Adam Cutler
Adam Cutler
Director, VAT and Customs Duty Services
London