Rural businesses hiring rooms for weddings need to be extra cautious about how VAT is applied following the latest ruling by the Tax Tribunal.
The latest case, centering on the letting of the Tamarisk Room at the Glendorgal Hotel, Newquay, has resulted in Blue Chip Hotels Ltd being assessed for more than £50,000 of unpaid VAT in relation to hiring the room for civil wedding ceremonies.
David McGeachy, Partner at UK top 20 Chartered Accountants Saffery Champness, and a VAT expert with the firm’s Landed Estates and Rural Business Group, says:
Owners of private properties, including country properties and estates, who let rooms for weddings, or indeed who let any space for ceremonies, should pay close attention to this ruling.
HMRC had argued that the Tamarisk room letting should be liable to a standard charge of VAT at 20 per cent as it did not constitute a VAT exempt passive letting of land. The Tax Tribunal agreed. It found that wedding regulations, allowing public access to a room for the holding of civil wedding ceremonies, prevented the legal right to exclusive use of that space by the customer under VAT law. Furthermore, as the room was provided with a right to hold a civil wedding ceremony, this meant there was no simple ‘passive’ letting of land.
On the basis of this ruling, where a license to hold such ceremonies has been issued, it is now clear that VAT also need to be added to the hire cost of these rooms, and that that will certainly increase the cost to those hiring the property for such events.
HMRC issued an updated policy paper last month outlining changes to the definition of dwelling, and which will affect the VAT treatment of a dwelling formed from more than one building.
David McGeachy, Partner with UK top 20 Chartered Accountant Saffery Champness, and a VAT specialist with the firm’s Landed Estates and Rural Business Group, says:
Whilst previously HMRC had considered that a building could contain more than one dwelling, they did not consider that a single dwelling could be formed from more than one building. However, following a recent First Tier Tax Tribunal ruling, HMRC now has accepted that the construction of a dwelling formed from more than one building can be eligible for VAT zero rating, and that this can also apply in principle to some conversions.
The new policy states that: a number of buildings may be combined to form a single dwelling as long as they are designed to function together for that purpose. Also, to be eligible for the zero rate: all buildings must be constructed or converted under a single project and under a single consent, and that none of the buildings is occupied until all stages are complete.
David McGeachy says:
We certainly can envisage situations where this new policy would apply to small-scale development of residential accommodation within the context of a farm or estate environment where, for example, the bedroom and bathroom may be in a separate building from the kitchen and living area. In certain circumstances such as conversion of premises of more than one single building into a dwelling, whilst they may not qualify for VAT zero rating, the reduced rate of VAT (5%) may apply.
The change is retrospective with claims for overpayment over the last four years potentially being eligible.