VAT for Hotels and Holiday Accommodation

Introduction

If you run a hotel, B&B, holiday let, or work as a travel agent or tour operator, you need to understand how VAT applies to your supplies. Hotel and holiday accommodation is standard-rated at 20%, though specific rules apply to long stays over 28 days. Travel agents and tour operators follow different VAT treatment depending on whether they act as intermediaries, principals, or use the Tour Operators' Margin Scheme.

Hotels, B&Bs and Similar Establishments

What counts as a hotel or similar establishment

For VAT purposes, hotels, inns and boarding houses are commercial establishments that provide furnished sleeping accommodation. You don't have to provide food or other facilities to qualify as a hotel.

"Similar establishments" include motels, guesthouses, bed and breakfasts, private residential clubs, hostels, and serviced flats (unless they're for permanent residential use). The key factor is that you provide furnished sleeping accommodation suitable for visitors or travellers.

Standard rate applies to accommodation

Sleeping accommodation supplied by hotels, inns, boarding houses and similar establishments is standard-rated at 20%.

This applies to:

• Bedrooms, including en-suite bathrooms
• Living rooms and suites
• Any rooms provided with the sleeping accommodation

Note: A temporary reduced rate applied to hotel accommodation between 15 July 2020 and 31 March 2022 (5% until 30 September 2021, then 12.5% until 31 March 2022). Since 1 April 2022, the standard rate of 20% has applied.

The Reduced Value Rule for Long Stays

When the rule applies

If a guest stays in your hotel, inn, boarding house or similar establishment for more than 28 consecutive days, a special "reduced value rule" kicks in from the 29th day onwards.

This rule is not an exemption – your supply remains taxable and you can still reclaim input VAT. Instead, the rule relieves the accommodation element from VAT, meaning you only charge VAT on the non-accommodation parts of your supply (such as meals and facilities).

Who qualifies

The reduced value rule applies to individuals who stay for more than 28 days, either alone or with others who are staying at someone else's expense (for example, family members).

The rule does not apply when companies make block bookings with a succession of short-term occupants (such as airline crew stopovers), even if the booking itself is long-term.

The stay must be continuous. If a guest stays for 3 weeks every month, you always charge full VAT. If they stay for 5 weeks, leave for a week, then return for another 5 weeks, the reduced value rule only applies to the fifth week of each separate stay.

However, the stay is still considered continuous if a long-term resident leaves for an occasional weekend or holiday, or if a student leaves during vacation but returns to the same accommodation afterwards.

How to calculate VAT on long stays

From day 29 onwards, you only charge VAT on the non-accommodation elements:

• Meals and drinks
• Other services
• Facilities

If you charge an inclusive price for "bed and board", you must make a reasonable apportionment. After separating out the charge for meals, drinks and other services, you must treat at least 20% of the remainder as being for facilities. If the true value of facilities is higher than 20%, you must use the true amount.

Holiday Accommodation

Holiday accommodation (including caravans and camping) is also standard-rated at 20% when you grant a licence to occupy the accommodation.

This includes:

• Grants of licences to occupy holiday accommodation
• Seasonal pitches for caravans (including facilities provided with the pitch)
• Pitches for tents and camping facilities

The same temporary reduced rates that applied to hotels also applied to holiday accommodation between 15 July 2020 and 31 March 2022. Since 1 April 2022, the standard rate applies.

Travel Agents and Tour Operators

Three ways travel agents can act

How you account for VAT depends on your relationship with your customer. A travel agent can act as:

1. An intermediary (agent) – arranging travel on behalf of a principal

2. A travel agent acting in their own name – using the Tour Operators' Margin Scheme

3. A principal – selling travel services as your own supply

What matters is how you're actually acting based on contracts and documentation, not what you call yourself. You may act differently for different transactions.

Acting as an intermediary

You're acting as an intermediary if:

• You and your principal have a documented agreement that you'll act as their agent
• You routinely disclose the principal's name (on tickets, booking terms, etc.)
• You're not taking significant commercial risk

When acting as an intermediary, you charge VAT only on your commission or fee, not on the full value of the travel service.

Self-billing is common in the travel industry, where the tour operator issues your sales invoice on your behalf. This requires prior permission from both you and HMRC. Even with self-billing, you remain responsible for determining the correct VAT treatment.

VAT liability of commission

Whether your commission is liable to VAT depends on:

• The place of supply of your service
• The VAT liability of the underlying supply

For example, if you arrange travel insurance as an intermediary, your commission is exempt from VAT if:

• The insurance is sold separately from travel
• The insurance relates to travel services with no UK VAT payable
• For insurance sold with UK VAT-bearing travel, you notify the customer in writing of the insurance price and any related fee

If you act as a sub-agent (an intermediary for another intermediary), your services are standard-rated when supplied in the UK.

Input tax recovery for intermediaries

When acting as an intermediary, you can normally reclaim VAT charged by UK VAT-registered suppliers if it relates to:

• Taxable (including zero-rated) supplies
• Supplies made outside the UK that would have been taxable if made in the UK
• Certain exempt insurance or financial services supplied to persons outside the UK

Deposits, Cancellations and Other Charges

The standard VAT treatment applies to deposits, cancellation charges and other fees associated with hotel and holiday accommodation supplies. These should follow the same VAT liability as the underlying accommodation supply.

Sources

• Hotels and holiday accommodation (VAT Notice 709/3)
• Travel agents (VAT Notice 709/6)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.