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Sam
Sam, Accountant
Category: Tax
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I have a (slighty complex) question about VAT. Could you

Resolved Question:

Hi - I have a (slighty complex) question about VAT. Could you help me please
Submitted: 7 months ago.
Category: Tax
Expert:  Sam replied 7 months ago.

Hi

What is the question and we can see if we are able to assist?

Thanks

Sam

Customer: replied 7 months ago.
I am working with a growing 'guest house' but I have an issue here that is troubling me and would like to get your opinion.The owner operates out of 3 seperate buildings (let us call these A, B and C). Just for clarity buildings A and B are adjacent and building C is just 200 yards away.Because total turnover (from ALL building) exceeds the VAT threshold the business has a vat registration.Builing A (with 5 rooms) has business rates. Buildings B and C have been designated and approved by council as being Houses in Multiple Occupation HMO.The owner has decided that because B and C are HMOs then any guest (tourist or business guest etc) who stays there are effectively 'Renting' the rooms and therefore is excluded from VAT. So the only vatable income is from buiding A. This has always struck me as tenuous. Can I please ask your advice.On a related issue - assuming that he is corrct regading the zero rated treatment for income from buildings B and C would he also be correct in deducting the input tax for services to these properties such as water rates, energy costs, telephone etc.Thank you
Expert:  Sam replied 7 months ago.

Hi

Thanks for your question -

VAT would not be due on the HMOs, so this is being managed effectively and correctly BUT then the input tax suffered on these two HMOs should not be claimed

Thanks

Sam

Customer: replied 7 months ago.
Hi Sam,OK so you are certain that this is being treated in the correct fashion? OK so how to adjust for input VAT can be complicated. There are some 'shared' services that cross over both HMO and Hotel buildings. How can we account for this. Some sort of journal entry each quarter?The business of letting room to guests in an HMO building I think may be sunject to special rules to get it recognised as an eligible treatment for vat. Standard lettings would be subkect to a tenancy agreement. Here though we have guests staying for just 1 or 2 days for purpose of business or holidaying. I am sure that we must have some version of tenancy agreement dont you?
Expert:  Sam replied 7 months ago.

Hi

Thanks for your response - yes this is being treated correctly.

The shared services need to be worked out i a consistent way - per rooms, or sq footage - so its not at all complicated -

If the HMOs have guests just staying one or two days then this sounds like a guest house - not a rental of HMO. You would need to get HMRC VAT to determine this and make a formal riling

Thanks

Sam

Customer: replied 7 months ago.
Hi Sam, Yeah this sounds like it. Perhaps I didnt explain it carefully enough at the beginning. This was my concern. The whole building are GUEST HOUSES but 2 of them have HMO licences. The owner has told me that because it is HMO then we can say that the guests are 'renting' the rooms and as such we dont need to apply VAT. Somewhere I need to get definitive advice on this matter but I cant afford to ask or warn HMRC about our specific property (obviously). Is there any one else I can contact or would HMRC respond about a 'general' query do you think?ThanksChris
Expert:  Sam replied 7 months ago.

Hi

There is noting wrong with two of them having HMO licences, the local council must have agrred and they carry our rigorous checks.

And the guests are renting the rooms - if no services are provided, and they share kitchen and bathroom facilities OR have access to their own on a studio type basis - and they fulfill the remaining remit as detailed, then the status of the building is correct.

Is breakfast supplied, sheets changed? Rooms cleaned for the guests ? That is the main determination that is looked for in a guest house situation.

But whether trade or rental income - the income tax/corporation tax would be the same its just the VAT sitation that I can see concerns you

Even if they stay just one or two nights IF NO services are provided, then its just rental income - the HMO determines the size of the property the layout and what facilities are shared

Link here for Government interpretation of HMOs

https://www.gov.uk/private-renting/houses-in-multiple-occupation

But if truly a HMO then VAT should not be claimed from these buildings -

Does that help?

Let em know if I can assist further

Thanks

Sam

Customer: replied 7 months ago.
Thanks again for this help Sam - well the room are cleaned and new sheets put on bed etc. before each new let - just like the rooms in the 'real' guest house. Continental breakfast can be supplied if the gusets wants it and is delivered to their room. I think this would be deemed to be a guest house and subject to vat dont you? What should we do to make it more like the guest is 'renting' the room.Thanks Chris
Expert:  Sam replied 7 months ago.

Hi

Then this is a guest house not an HMO - so I agree with your analysis of the situation and VAT should be charged (and then VAT suffered can be reclaimed)

For the guest to be renting the room - NO services at all even as an option - its fine that the sheets are changed and even that its one or two nights but this does not appear to be a normal rent with the standard tenant

Let me know if I can assist furtehr but if you have all you need - it would be appreciated if you could rate me for the level of service I have supplied (or click accept)

Thanks

Sam

Sam, Accountant
Category: Tax
Satisfied Customers: 13774
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
Sam and other Tax Specialists are ready to help you
Customer: replied 7 months ago.
Thank you Sam - you have answered successfully my questions.

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