Accommodation provider wins £252k TOMS VAT case
A tribunal has ruled that a supplier of temporary accommodation to business travellers and tourists can apply the Tour Operators Margin Scheme
Sara White, Editor, Accountancy Daily
From 2017, Sonder Europe Limited provided accommodation in the UK to corporate and leisure travellers. The accommodation was in the form of self-contained apartments which Sonder had leased from third party landlords.
The company sublet the apartments to travellers for different periods from a single night to a month or more. During the relevant period, the average stay at a Sonder apartment in the UK was five nights.
This appeal concerned the Tour Operators Margin Scheme (TOMS), a special VAT scheme which applies to certain supplies made by travel agents and tour operators for the benefit of travellers. It was created by the Value Added Tax (Tour Operators) Order 1987 (TOMS Order).
In VAT accounting periods ending 10/17, 01/18 and 04/18, Sonder accounted for VAT on the basis that its supplies fell within the scope of the TOMS.
In 2019, HMRC decided that TOMS did not apply to the supplies made by Sonder with the result that those supplies were chargeable to VAT at the standard rate in the sum of £252,229.29.
Sonder challenged this decision and appealed to the First Tier Tribunal.
Sonder argued that it was a tour operator because its position was indistinguishable from that of the tour operators in Van Ginkel and Alpenchalets. Just like them, Sonder bought in supplies of accommodation from the landlords and made onward supplies of that accommodation to travellers.
TOMS allows a travel company to only pay VAT on the difference (the margin) between their own buying price, for example the rent they pay for an apartment and the selling price they charge the end customer. Using TOMS means they only pay 1/6 of the margin rather than 20% on the overall selling price.
However, HMRC rejected the claim, stating that renting exempt residential accommodation and then subletting it to travellers does not fall within the TOMS. Their primary argument was that a trader who made supplies of travel accommodation from its own resources was a hotelier and not a tour operator. In using the leased apartments for short term accommodation, Sonder transformed the landlord’s supply from one of exempt land for residential occupation into a standard rated supply of hotel accommodation.
The tribunal stressed that ‘any business that provides services which are the same as or comparable to those provided by travel agents or tour operators within the normal meaning of those terms is itself a travel agent or tour operator for the purposes of the EU special scheme. That is reflected in section 53(3) VATA’.
The judge Greg Sinfield said: ‘There was no suggestion that the apartments were used as permanent or long term accommodation and, during the relevant period, the average length of stay was only five nights.
‘Sonder used the apartments to provide temporary accommodation for persons who did not reside in them as their homes. I conclude that such persons were travellers and the apartments were, therefore, travel facilities (in the terms of Article 306 PVD) and for the benefit of travellers (as required by section 53(3) VATA).’
The tribunal ruled that the supplies of accommodation made by Sonder were designated travel services supplied by a tour operator for the purposes of the TOMS order and the appeal was allowed.
Sue Rathmell, VAT and indirect tax partner at MHA, said the case strengthened the business model of companies in the rent-to-rent travel sector to use TOMS.
‘HMRC wanted companies in the serviced accommodation sector, where we’ve seen huge growth over the past few years fuelled by the rise of AirBnb, booking.com and so on, to pay substantially more VAT. Anecdotally clients have told me if they had to pay VAT at the rates HMRC wanted they wouldn’t make any money,’ Rathmell said.
‘First Tier Tribunal decisions are not determinative so HMRC may still question the use of TOMS for R2R. Alternatively it may change the UK’s VAT law to exclude these types of supplies from being within TOMS.
‘For now companies that have been using TOMS can breathe a sigh of relief. For those companies that aren’t taking advantage of TOMS they need to think why not. You can only go back four years to make a claim for over declared VAT, so if a company is not already using TOMS, they should consider whether to make a claim applying TOMS and then potentially stand behind Sonder’s appeal in the courts to protect their position.’
HMRC can appeal the decision to the Upper Tribunal.