Some questions remain following a recent case 

A recent case report has thrown some light on the question of the 90/10 split for VAT charged on the rent of public houses. This case was brought by Enterprise Inns plc and Unique Pub Properties Ltd appealing against a decision of the Tribunal (this is the Tax Chamber of the First Tier Tribunal, the rather over-the-top name for the body that hears appeals from HMRC decisions).

Rent attributable to residential areas
Operators will be well aware that the 90/10 split for VAT has attracted comment over the years and also a degree of uncertainty. The particular issue which was brought in this appeal by Enterprise Inns plc and Unique Pub Properties Ltd related to pubs which contain both commercial and residential accommodation. The question was whether any of the rent that Enterprise Inns plc and Unique Pub Properties Ltd received is attributable to the residential areas of the pubs as a result of their having exercised the option to tax.

The reason why this is a particular issue is that the extent to which rent is attributed to residential accommodation has an implication for the landlord’s ability to recover input tax. In particular, in that case, the argument put forward by Enterprise Inns plc and Unique Pub Properties Ltd explained that the apportionment of rent between commercial and residential areas had an effect on their ability to recover VAT on their property related and overhead costs.

In the course of the decision it was recorded that the 90/10 split “was in accordance with standard practice in the brewing sector which was based on a suggestion by the Brewers Society at the time the option to tax was introduced in 1989”. The argument put forward, started in April 2008, by Enterprise Inns plc and Unique Pub Properties Ltd was that they thought that all rent should be subject to VAT and that the 90/10 split was not appropriate.

The decision
The decision of the Tribunal, which was upheld on appeal, was that a grant of a tenancy of a public house includes the commercial and residential area and a single supply exists for VAT purposes. It must follow that the rent payable under the terms of the tenancy was for the residential part of the premises as well as the commercial part – the public house. The Tribunal concluded, supported on appeal, rent payable for the tenancy of the public house which includes residential accommodation was required to be apportioned to reflect the standard rate of VAT (for the commercial part of the premises) and the exempt elements (the residential part) of the single supply. The Tribunal decided, confirmed on appeal, that the existing rate of apportionment of 90/10 (standard/exempt) should remain.

One word of caution however. The Tribunal’s view was that they were not asked to consider how much rent was to be attributed to the residential area because it was common ground that if some rent was attributed to the residential area a 90/10 split was appropriate.  Accordingly this is not the complete answer to the queries that we regularly receive as to whether or not the 90/10 split should be adjusted to reflect the actual square footage. However, it does rather look as if queries on this point might reduce as a result of this case.


The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.