No additional VAT charges for guest room rentals as court thwarts HMRC guest room tax grab – London Business News


Following Wednesday’s (January 5) first-level tax court ruling in favor of Errol Willy Salons Ltd (a hairdressing salon in Cardiff), businesses renting a spare bedroom may breathe a sigh of relief as HMRC attempts to bypass VAT exemption status. rental charges fails. This means that any business renting a room to a tenant will not necessarily be subject to an additional VAT charge even if amenities, such as toilets and hospitality services, are provided to the tenant:

Errol Willy, who runs the Errol Willy Salons Ltd hair salon in Cardiff, this week scored a deeply personal victory over HMRC, who claimed he had to pay VAT on the rent he charged to two independent beauticians using his first two spare. bedrooms upstairs. If HMRC had been successful, any business renting a room to a tenant could have found themselves subject to additional VAT. In this case, Errol Willy was represented by Glyn Edwards, Director of VAT at the 12 major MHA accounting groups.

Although the rent relates to a supply of land and as such is exempt from VAT, HMRC argued that Errol Willy Salons Ltd provided the beauticians with a package of services rather than just two rooms. Services included access to washrooms and staff rest area, receptionist services, and lighting, heating and advertising. As such, the HMRC issued a VAT assessment for £ 18,000 based on the rent Errol Willy charged the beauticians.

The first-level tax court agreed with Errol Willy that the additional services he provided to his tenants were incidental. Access to staff toilets, occasional use of the receptionist and the classified ad provided by Errol Willy were deemed non-essential to the beauticians’ business. In the court judgment, the predominant supply made by Errol to beauticians was the rental of a room and this was rightly considered exempt from VAT.

According to Glyn Edwards, director of VAT at MHA, “If HMRC had been successful in its case, thousands of salons would have been vulnerable to similar attacks anytime additional services were provided with the rental of rooms to beauticians operating in the same way. independent in a living room. An HMRC victory could also have had a wider impact. Potentially, any business renting a vacant room to a tenant (such as an accountant or lawyer renting a room from a financial advisor) could have become vulnerable to a VAT assessment. So a lot of small businesses and some bigger ones renting spare rooms have dodged a bullet here.

“It seems likely that HMRC took up this case in an attempt to establish where the line should be drawn between a supply of a room (exempt from VAT) and a supply of services of which the room is a part (taxable). HMRC has already been successful in a similar case involving the provision of rooms by a massage parlor to masseurs. However, in the case involving the masseurs, a much wider range of services was provided than was the case with Errol Willy Salons Ltd.

The victory was deeply personal for Errol Willy who continued to litigate the case, which began five years ago, in support of his late wife Michelle Willy. Michelle, a fellow company director, died in 2019 after battling cancer. Michelle was Miss Great Britain in 1981 and was actively involved in the affair in its early days.

Commenting on the case, Errol Willy said: “This case was not about money, it was good and bad and our success in the First Level Tax Court is a victory for small businesses across the country. This business started five years ago and without hard work and diligence we would not have won. I hope this case will help other businesses that find themselves in similar situations. The matter became deeply personal to me, and I felt compelled to continue the fight because of my late wife Michelle who sadly passed away in 2019 while we were in conflict with HMRC. She would have been delighted with our success this week.

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