Residential Rent is an Exempt Supply for VAT, however, Serviced Accommodation isn’t, its treated as Holiday Accommodation.
Holiday accommodation includes, but is not restricted to, any house, flat, chalet, villa, beach hut, tent, caravan, or houseboat.
If you supply holiday accommodation, or a site for such accommodation, you must account for VAT at the standard rate on any charges that you make regardless of the length of occupation or description of the charges.
The problem with VAT is that if you promote your serviced accommodation to the general public it will either make it 20% more expensive for them or reduce your profit!
So lets look at somethings that might help
You can’t charge VAT unless you are registered for VAT and you don’t have to register until your turnover hits £85,000.
VAT taxable turnover is the total value of everything you sell that isn’t exempt from VAT.
You must register for VAT with HM Revenue and Customs (HMRC) if it goes over the current registration threshold in a rolling 12-month period. This isn’t a fixed period like the tax year or the calendar year – it could be any period, eg the start of June to the end of May.
VAT Flat Rate Scheme
There were changes to the VAT Flat Rate Scheme in April 2017 the changes are aimed mainly at low cost traders, we don’t know the full details yet.
A Low or Limited Cost Trader would spend less than 2% on gross turnover, or less than £1000 on the purchase of goods.
Assuming that the changes don’t affect Hotels and Holiday Accommodation, Flat Rate could save you VAT.
To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.
With the Flat Rate Scheme:
- you pay a fixed rate of VAT to HMRC
- you keep the difference between what you charge your customers and pay to HMRC
- you can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000
The Flat Rate for Hotels and Accommodation is 10.5%
You bill a client for £1,000, adding VAT at 20% to make £1,200 in total.
You’re selling serviced accommodation, so the VAT flat rate for your business is 10.5%.
Your flat rate payment will be 10.5% of £1,200, or £126.
Provided there are commercial reasons why you should have separate businesses or companies, then each business would have the £83,000 registration threshold
The rules are set out in HMRC manuals and in this blog
VAT on Deposits
Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.
Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation. This includes amounts debited from credit cards using details provided at the time of the booking. Where the cancellation charge takes the form of a retained deposit, you can reclaim any VAT already accounted for as an adjustment to your next return.