The First Tier Tribunal (FTT) has found that a company letting apartments as short-term serviced accommodation was subject to VAT. The accommodation was being let in an establishment similar to a hotel.
In Realreed Limited v HMRC [2024] TC09013, Realreed owned 'Chelsea Cloisters', a property in Sloane Avenue, London.
- Chelsea Cloisters consisted of 656 self-contained apartments providing Residential accommodation. 421 apartments were let on long leases with the remaining 235 apartments, the subject of this appeal, being let on shorter terms.
- A significant number of occupiers came from corporate customers, such as banks, where employees were on secondment in London.
- Apartments had fully functioning kitchens and other self-catering facilities, along with washing machines and dryers. No room service or catering was offered.
- Services to apartments were separately supplied by Chelsea Cloisters Services Limited (CCSL), a company under common ownership with Realreed.
- These services included daily maid service, weekly towel and linen changing, dry cleaning, Wi-Fi vouchers, key replacement and luggage storage.
- CCSL accounted for VAT on its supplies.
- Other advertised facilities included: secure parking, 24-hour concierge, check-in desk, 24-hour security and CCTV, 24-hour porterage, in-house bar, satellite and Freeview TV.
- Between October 2007 and December 2008, 65% of stays were for 28 days or more. By 2019 this had decreased, albeit with over a third of stays exceeding 28 days.
- Between 2010-11 and 2015-16, average nights per stay varied between 9.25 and 16.66.
- Realreed treated its supplies as exempt from VAT.
- HMRC raised a VAT assessment totalling £4.57m on the basis that Realreed’s supplies were standard-rated, being the provision of sleeping accommodation in a Hotel, inn, boarding house or similar establishment.
- For this purpose, ‘similar establishment’ includes 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.
- Realreed Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- It was necessary to consider what was ‘on offer’ at Chelsea Cloisters. The focus of this was on the place, not a person or activity.
- It did not matter that Realreed was only providing the sleeping accommodation; the services supplied by CCSL also had to be taken into account as they formed part of the ‘offering’ at Chelsea Cloisters.
- This overall offering (with services) was something Realreed had contractually committed to. This gave the required degree of permanence, scale and stability to take CCSL’s services into account when considering the liability of Realreed’s supply.
- Realreed was providing sleeping accommodation in an establishment which was similar to a hotel. Its supplies were therefore not exempt from VAT.
- This was the case both on the ordinary meaning of ‘similar to a hotel’, but also as the supply amounted to furnished sleeping accommodation which was used by, or held out as being suitable for use by, visitors or travellers. In this context, ‘visitor or traveller’ refers to a person being present at Chelsea Cloisters without making it their home (i.e. someone staying with no degree of permanence).
- The fact that the accommodation was short-term, taken with the additional and ancillary services provided, meant that Chelsea Cloisters was in potential competition with the hotel sector.
- In terms of penalties, Realreed had not taken Reasonable care concerning VAT. While HMRC had not challenged the VAT treatment during previous inspections, there was no evidence of Realreed:
- Taking considered professional advice.
- Analysing its VAT position internally.
- Engaging in any discussion with HMRC to determine its VAT liability.
The appeal was dismissed.
Useful guides on this topic
Land & Property: Dwellings
What is a dwelling for VAT purposes? What is the VAT treatment for the construction, conversion, sale, and letting of a dwelling?
Land & Property: Non-residential
This guide considers the VAT treatment of the supply of non-residential property.
Land & Property VAT at a glance
A summary of VAT on common land and property transactions.
Land & Property VAT (Subscriber guide)
An outline of the VAT treatment of some of the more common supplies of land and property.
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