The recent tribunal hearing in the case of City YMCA London v HMRC could have important implications for charities that provide accommodation. If you provide such accommodation, you need to ensure that you are set up in a manner that maximises VAT-efficiency.
This case concerned the issue of a charity providing hostel accommodation to the homeless.
In the City YMCA London case, the debate centred on whether the accommodation provided fell to be treated as a “hotel or similar” for VAT purposes. The technical debate centred on whether the tenant had exclusive possession similar to a licence to occupy land resulting in the accommodation being treated as similar to hotels and boarding houses and therefore standard rated, but being eligible for the 28 day rule to exempt the income for the accommodation element after the 28th day. This would still allow for a full deduction of input VAT plus the reduced COVID-19 rates of 5% between 15 July 2020 and 30 September 2021 and 12.5% between 1 October 2021 and 31 March 2022. If not, the 20% rate applied with no available reduced rates.
The Tribunal found in favour of City YMCA London ruling that the hostel was similar to a hotel and that contractually a license to occupy the accommodation existed.
It will be interesting to see whether HMRC appeal the decision.
If you are a charity and supply accommodation, it is important to review historic agreements between the charity and the users to ensure such agreements reflect a licence to occupy arrangement. With this in place the providers can take advantage of both the COVID-19 reduction in the VAT rate, to 5% and then 12.5%, as well as the 28-day reduced VAT rule for accommodation suppliers. Do not rule out the potential for a retrospective VAT refund if the COVID-19 reduced rates or the 28 day rule have not been applied correctly!