Applying VAT exemption to room hire

16 January 2018

There have recently been several VAT Tribunal cases that have added ambiguity to the question of when room hire by hotels and similar establishments for ‘events’ is VAT exempt.

When an ‘option to tax’ has been made by the person hiring out the room VAT will be chargeable (in the vast majority of cases).  However, historically, the widely accepted position has been that renting an essentially empty room for a defined period is the grant of a license to occupy land, and is therefore VAT exempt. VAT law explicitly removes this exemption when the hire is ‘for the purpose of a supply of catering’.

HMRC’s apparent change of approach, as seen in the cases detailed below, involves a wider assessment of whether there are other aspects of the transaction (unrelated to catering) that add ‘significant value’ to the room, meaning that VAT becomes applicable.

In Chewton Glen, there was no catering provision, but the Tribunal took the view that the hire charge was more than would be expected purely for the hire of the room, noting that customers also had the use of other facilities, such as parking, reception and the use of the grounds for photographs. It was the Tribunal itself that suggested that this made the supply subject to VAT even though there was no catering provided.

In a subsequent case, Blue Chip Hotels Ltd, the company rented out a bare room for civil marriage ceremonies. The judge decided that the room did not qualify for the land exemption because the marriage ceremony licence added ‘significant value’ and changed the fundamental nature of the supply.

In International Antiques and Collectors Fairs, the taxpayer organised antiques and collectors’ fairs and charged fees to exhibitors for renting space at the fair. The taxpayer also advertised the fairs online, as well as in trade publications and the local press. HMRC considered, and the tribunal agreed, that the fees were standard-rated, as the company was making supplies of access to an exhibition along with advertising and other accompanying services.

HMRC guidance in relation to conference facilities states: ‘If you make an exempt supply such as providing a room for a meeting or a conference and you provide minimal refreshments such as tea, coffee and biscuits, the room and the incidental catering will be treated as a single exempt supply’. Therefore, the question is: When do elements that might be related a room hire cease to be incidental and become sufficiently important to change the status of the supply?

Taxpayers with concerns are well advised to seek professional advice. However, the starting position is likely to involve an evaluation of:

  • the customer’s aims, and whether these are likely to involve more than the simple use of the room;
  • whether there are any features that make the facilities being hired of particular value;
  • whether there are features of the supply that prevent the hirer as having ‘exclusive’ occupation rights; and
  • how passive the hirer’s role is in relation to the hire – ie. if it is really a simple room hire or entails a wider involvement with the event.

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