Hotels may sometimes find that charities claim exemption from VAT on room hire for events. Charities appear to have picked up on the point because they are eligible for an exemption on tax on a supply of land made to the charity. As HMRC agreed a few years ago that where a hotel supplies a room for use as a conference/function room only, this is treated for VAT purposes as a supply of land, logically this should apply to supply of a conference room to a charity.
This exemption only applies if the charity uses the land solely for its charitable purposes, and a certificate to this effect must be given before the supply of land takes place. So this would not apply if, for example, the charity is making a business use of the land, which could be the case if it were renting a room for a conference and charging admission. However, if they were using the hotel room for training volunteers on charity work on a no cost basis, this would apply for exemption purposes.
The question this raises for hoteliers when it comes to their VAT return is whether this becomes exempt turnover or whether it is zero rated.
It should be noted that an exemption on VAT doesn’t apply if the room is supplied for catering purposes – as in the case of a private dining room, or for a wedding reception, or a charity dinner – so in these examples catering is the primary purpose of the room hire, in which the cost is standard-rated for VAT.
Where a conference room is provided with catering, and the catering is subsidiary to the main use of the room (eg where training is the main function of the room and refreshments are also provided), there is scope for disagreement over where to draw the line and whether the entire supply should be VAT standard-rated or treated as services provided as separate supplies.
This is a new development and HMRC may not be aware of it – disapplication of the option to tax is generally intended to apply where a charity acquires land (either freehold or under a lease). However there certainly seems to be an argument for charities being exempted for room hire for non-commercial purposes where catering is not the primary reason for the room hire.
Practical advice:
Where you have charities booking conference rooms for hire and wishing to apply the exemption for VAT, ensure that charities give a proper certificate in relation to supply of land and confirm that the room will be used solely for charitable and non-business purposes. The certificate doesn’t have a required form and can be done in the form of a letter. Any catering, if required, should be invoiced separately – with standard-rate VAT being charged on that.
And another point to bear in mind
In terms of making sure you are claiming back any VAT payments for which you are eligible, it is worth bearing in mind this point. Following an court decision last year, where a customer makes an up-front deposit or payment for an hotel room which is subsequently forfeit because the customer cancels or doesn’t show up, the hotel can keep the VAT element of the amount charged, because no service has been supplied.
Hotel operators would benefit from submitting a reclaim for this VAT over the last 3 years if this hasn’t been done already. If you would like further advice on how this scenario might be applied to your circumstances please contact us
