Category Archives: Start Up

VAT: Holiday Lets – don’t get caught out

By   10 July 2025
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Further to the usual complexity with VAT and property, I have been increasingly asked about the VAT position of holiday lets, so, with the holiday season in full swing, this is a timely piece on the subject.

All residential letting is exempt… except holiday lets, which are standard rated at 20%. So, what is the difference? After all a house is a house, but the VAT treatment depends on how the property is advertised or “held out”.

If a property is held out for holiday accommodation, then the rental income is taxable.

What is holiday accommodation?

Holiday accommodation includes, but is not restricted to; any house, flat, chalet, villa, beach hut, tent, caravan or houseboat. Accommodation advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation. Also, increasingly, it is common for farms and estates to have cottages and converted barns within their grounds, which are exploited as furnished holiday lets so this use must be recognised for VAT purposes. Residential accommodation that just happens to be situated at a holiday resort is not necessarily holiday accommodation.

This treats holiday lets the same way as hotels, inns and B&B were VAT applies, which is fair.

Off-season lettings

If holiday accommodation is let during off-season, it should be treated as exempt from VAT provided it is let as residential accommodation for more than 28 days and holiday trade in the area is clearly seasonal.

What does this mean?

If the letting business exceeds the VAT registration threshold, currently £90,000, it must register for VAT. This usually means that either the business would lose a sixth of its income to HMRC or its letting fees would increase by 20% – which is not usually an option in a particularly price sensitive market. The only upside to registration is that VAT incurred on costs relating to the letting (input tax) would be recoverable. This may be on expenditure such as; agents’ fees, maintenance, refurbishments, laundry, websites and advertising etc.

Agents

If a property owner provides a property to a holiday letting agent and the agent itself provides the letting directly to the end users, this does not avoid the standard rating, even if the agent pays a guaranteed rent to the freeholder. This can catch some property owners out.

Sale of the property

When the owner sells the property, although it may have been used for standard rated purposes, the sale is usually treated as exempt. However, zero rating may be available for the first sale or long lease if it is a new dwelling with no occupancy restrictions. The sale of a “pure” holiday property is likely to be standard rated if it is less than three years old. To add to the complexity, it is also possible that the sale may qualify as a VAT free Transfer Of A Going Concern (TOGC).  These are important distinctions because they determine, not only if VAT is chargeable, but, if the sale is exempt, there is usually a clawback of input tax previously claimed, potentially visa the Capital Goods Scheme (CGS).

Overseas properties

A final point: please do not forget overseas property lets. My article here sets out the tax risks.

Summary

There are a lot of VAT pitfalls for a business providing holiday lettings. But for a single site business, unless the property is large or very high end, it is likely that the income will below £90,000 and VAT can be ignored. However, it is important to monitor income and costs to establish whether:

  • registration is required
  • voluntary registration is beneficial (usually, but not exclusively, for major refurbishment projects).

VAT Notice 708: Buildings and construction updated

By   1 July 2025
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This Notice explains how to establish the appropriate VAT rate on building work and materials for contractors, sub-contractors and developers.

The construction of a new building and work to an existing building is normally standard rated. However, there are exceptions to this, inter alia:

  • construction of new qualifying dwellings and communal residential buildings, and certain new buildings used by charities ― zero-rated
  • conversion for a housing association of a non-residential building into a qualifying dwelling or communal residential building ― zero-rated
  • alterations to suit the condition of people with disabilities ― zero-rated
  • first time gas and electricity connections ― zero-rated
  • conversion of a non-residential building into a qualifying dwelling or communal residential building ― reduced rate of VAT 5%
  • renovation or alteration of empty residential premises ― reduced rate of VAT 5%
  • installation of energy saving materials, grant funded heating system measures and qualifying security goods ― reduced rate of VAT 5%
  • installation of mobility aids for the elderly for use in domestic accommodation ― reduced rate of VAT 5%

(These are just some examples; other works may also qualify for zero or reduced rating)

Amendments

Paragraph 7 (re: the conversion of premises to a different residential use) on reduced rated work has been amended at para 7.6 as there was uncertainty over the previous drafting.

Paragraph 8.4 has been revised to more accurately reflect the rules on the installation of building materials which are reduce rated.

A VAT Did you know?

By   30 June 2025
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Lugworms and maggots are standard rated, unless they are also suitable for human consumption, in which case they may be zero-rated – Yum.

VAT: New guidance – Online Marketplace supplies

By   24 June 2025
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HMRC issued new guidance for businesses which sell goods using an online marketplace on 20 June 2025. It enables online marketplace (an e-commerce site that connects sellers with buyers where transactions are managed by the website owner) operators to check if a seller is established outside the UK, so that it can establish which party is liable for VAT on sales.

Background

An online marketplace operator is liable for VAT on goods of any value that are both:

  • located in the UK at the point of sale
  • sold by an overseas business through the operator’s online marketplace

The operator needs to establish who is liable for VAT on sales of goods which are facilitated. To confirm this, the operator needs to take all reasonable steps to check whether a seller is established outside the UK. A business is required to keep evidence to show that it has taken all reasonable steps.

This new guidance includes details about how to check where an online marketplace seller is established and provides information about checks and process businesses can put in place. HMRC will review this evidence and will consider all evidence which has been used to establish where the seller is established. In each case, it will consider:

  • what steps were performed, including any that are designed to address the risks of a particular case
  • to what extent steps were appropriate, adequate and timely in relation to addressing the risks identified
  • what the results of the checks indicate
  • whether a business took appropriate action in response to the results

Examples of checks

HMRC give the following examples of types of checks which might be undertaken to determine if an online seller is UK-established:

  • check for a UK principal place of business
  • check that the VAT registration available for the seller matches their legal name and details on HMRC’s Check a UK VAT number tool
  • check that the seller is registered at Companies House with a UK address
  • establish whether directors reside in the UK, eg; as shown on the Companies House register
  • check that payment or financial information shows a UK presence. This can include:
    • UK bank or credit card details
    • UK merchant address attached to the seller bank account
    • other financial data provided by independent payment service providers
  • check other commercially relevant information such as credit checks and other background checks from third party sources
  • check that the device used by the seller has a UK IP address, or check another method of geolocation
  • establish whether the seller uses a phone number with a UK country code

Overview of online sellers

More general guidance from HMRC on online sellers:

The rules aim to avoid VAT evasion by non-UK online sellers.

VAT: Treatment of vouchers, gifts and discounts – How business promotions work

By   18 June 2025
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Business promotions are an area of VAT which continues to prove complex.  This is further exacerbated by changes to the legislation at EU and domestic level and ongoing case law. The main points are; whether there is a supply, and, if so, what is the value of that supply?

I hope that the VAT position is helpfully summarised here. I thought it may be useful if the VAT treatment of various business promotion schemes is set out in one place.

I recall a statement from an old mentor of mine; “if you have a marketing department you have a VAT issue!”

Summary

Offer How to charge VAT
Discounts Charged on the discounted price (not the full price)
Gifts Charged on the gift’s full value – there are some exceptions listed below
Multi-buys Charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods
Money-off coupons, vouchers etc No VAT due if given away free at time of a purchase. If not, VAT due on the price charged
Face value vouchers that can be used for more than one type of good or service (multi-purpose) No VAT due, if sold at or below their monetary value
Face value vouchers that can only be used for one type of good or service (single-purpose) VAT due on the value of the voucher when issued
Redeemed face value vouchers Charged on the full value of the transaction at the appropriate rate of the goods provided in return for the voucher

 Exceptions for gifts

There’s no VAT due on gifts given to the same person if their total value in a 12 month period is less than £50.

Free goods and services

A business is not required to account for VAT on things like free samples if they meet certain conditions.

Supplies Condition to meet so no VAT due
Free samples Used for marketing purposes and provided in a quantity that lets potential customers test the product
Free loans of business assets The cost of hiring the asset is included in something else you sell to the customer
Free gifts The total cost of all gifts to the same person is less than £50 in a 12 month period
Free services You don’t get any payment or goods or services in return

Background

Face value vouchers

Quite recent changes, radically alter the UK rules for face value vouchers (FVV). FVVs are; vouchers, tokens, stamps (physical or electronic) which entitle the holder to certain goods or services up to the value on the face of the vouchers from the supplier of those goods or services.

Examples of FVVs would include vouchers sold by popular group discount websites, vouchers sold by high street retailers, book tokens, stamps and various high street vouchers.

Single or multi-purpose

The most important distinction for FFVs is whether a voucher is a single purpose voucher or multi-purpose voucher. If it is a multi-purpose voucher then little has changed. If it is a single purpose voucher, however, HMRC will now required output tax to be accounted for at the date it is issued.

Single purpose vouchers are vouchers which carry the right to receive only one type of goods or services which are all subject to a single rate of VAT. Multi-purpose vouchers are anything else. The differences can be quite subtle.

For example:

  • a voucher which entitles you to download an e-book from one seller will be a single purpose voucher. A voucher which entitles you to either books (zero rated) or an e-book download (standard rated) from the same seller will be multi-purpose
  • a voucher which entitles you to £10 of food at a restaurant which does not sell takeaways is probably single purpose, whereas if the restaurant has a cold salad bar and you can buy a take away with the voucher (or hot food) then it would be multi-purpose. 

The above means that for single purpose vouchers VAT is due whether the voucher is actually redeemed or not; which seems an unfair result. There is no way to reduce output tax previously accounted for if the voucher is not used.

Please contact us if you, or your clients use this type of business promotion. of course, get it wrong, and there is likely to be a financial penalty…

VAT: Are poppadoms crisps? The Walkers Snack Foods case

By   4 June 2025
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Latest from the courts  

In the Walkers Snack Foods Ltd Upper Tribunal (UT) case the issue was whether Sensations Poppadoms are similar to potato crisps and consequently excluded from the zero rating for food.

The First-Tier Tribunal (FTT) found that the product was similar to crisps and that it was to be treated as being excepted items from zero-rating and was therefore standard rated.

Background

The salient matter was whether the poppadoms were “made from the potato, or from potato flour, or from potato starch” and were “similar” to potato crisps via The VAT Act 1994, Schedule 8, Group 1, item 1, excepted item 5.

Value Added Tax – excepted item 5 to item 1, Group 1, Part II, Schedule 8 Value Added Tax Act 1994 – whether First-tier Tribunal erred in law in finding Sensations Poppadoms were “made from the potato, or from potato flour, or from potato starch” and were “similar” to potato crisps

This sets out that the following is excepted from the zero rate for “Food of a kind used for human consumption”.

“5. Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.”

Contentions

The appellant argued that the poppadoms should be zero-rated for VAT purposes because they fall within Item 1 of Group 1 as they are food, and that they are not included in the list of exceptions.

 HMRC contended that that the product fell within excepted item 5 of Group 1, because they are products similar to potato crisps…

Decision 

  • The UT agreed with the FTT that the words “made from the potato” can extend to products made from potato granules and was neither untenable nor a plain misapplication of the law to the facts. 
  • The UT recalled that the FTT had concluded that Sensations Poppadoms contained “more than enough potato content” for it to be reasonable to conclude that they were “made from the potato… or from potato starch”. Sensations Poppadoms have a combined potato content (potato granules and potato starch) of 39%-40%, so the potato content is significant. The question for the UT was whether the FTT reached a conclusion which no reasonable tribunal properly construing the statute could have reached. The UT answered “no”.
  • The UT noted that the FTT determined that Sensations Poppadoms were similar to potato crisps based on a multifactorial assessment of various factors, including; packaging, appearance, texture and taste. The FTT noted that while the manufacturing processes differ, the statute allows for similarity among products made from potato starch and flour. The FTT found that the potato content in Sensations Poppadoms contributed to a neutral flavour, which did not significantly distinguish them from potato crisps. Broadly, the UT agreed with this determination.

Consequently, for the above reasons the UT dismissed the appeal and the product is subject to the standard rate.

Commentary

Yet another case on the liability of ‘snack foods’. So now we know that: Doritos, Monster Munch, Wotsits and Poppadums are standard rated, however Pringles, Skips and Twiglets are VAT free. This demonstrates the complexity of classifying food and these decisions throw up more complications for producers as this market develops quickly as the public’s taste moves on.

VAT: New guidance on exception from registration

By   2 June 2025
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HMRC has published new guidance which sets out how to apply for VAT registration exception if a business has temporarily exceeded the VAT registration threshold of £90,000 in any 12-month period (a rolling calculation).

What is registration exception?

If a business has a one-off increase in income it can apply for a registration exception. If its taxable turnover goes over the threshold temporarily it can write to HMRC with evidence showing why the taxable turnover will not exceed the deregistration threshold (currently £88,000 in the next 12 months). HMRC will consider an exception and write confirming if a business will receive one. If not, HMRC will compulsorily register the business for VAT. A business will need to formally apply to HMRC to make this exception official.

The guidance explains:

  • when to apply
  • how to apply
  • what happens after the application

Forms

A business will need to complete forms VAT1 and VAT5EXC in order to apply for registration exception. HMRC will write to the applicant within 40 working days of receipt with a decision.

If HMRC approves the application for exception

HMRC will not register the business for VAT. However, this is a ‘one-off’ and does not mean that the business will never have to register.

The value of taxable supplies must be checked every month, to establish whether they have exceeded the registration threshold. If they have, the business must:

  • register for VAT
  • apply for exception again

If HMRC refuses the application for exception

The response letter will explain why, and the information provided on the form VAT 1 will be used to VAT register the business. The applicant will need to account for VAT from the date it was liable.

A VAT Did you know?

By   20 May 2025
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The sale of ostriches is zero rated, but kangaroos are standard rated. Both are sold as food.

VAT: Whether an online tool an ‘examination service’? The Generic Maths case.

By   12 May 2025
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Latest from the courts.

In the Generic Maths Limited First Tier Tribunal case the issue was whether the appellant’s product; ‘ConquerMaths’ amounted to examination services so to be exempt via The VATA 1994, Schedule 9, Group 6, Item 3.

Background

Generic Maths provided an online tool which was intended to be of benefit to students or their parents/teachers. The following facts concerning ConquerMaths were found:

  • it does not lead to any qualifications
  • users can drop in and out of the offering (unlike the way they might have to proceed if following a course leading to a qualification)
  • it includes many hundreds of available diagnostic tests that test students’ knowledge of the principles that will be taught on the various subjects
  • several short tutoring videos are included, although the number of videos is small in comparison to the number of diagnostic tests
  • the average user spends 75 minutes on diagnostic tests compared to five minutes on videos
  • the appellant’s witnesses described the product as diagnostic assessments, formative assessments, and summative assessments
  • in addition to the diagnostic tests, the product includes worksheets in an exam format. Pupils are encouraged to complete these offline and then feed the results into the system

The issue

Simply put; was the product predominantly a tool that provides assessments enabling those using the product to determine what level of maths ability the student has reached and identify any gaps in knowledge and therefore an exempt supply since it falls into the category “examination services”? Or, as HMRC contended, was it an online mathematical tutorial tool which was standard rated as it was a composite supply the predominant element of which was education and that the supply was not one of examination services? (There was no argument that these were exempt educational services).

The tests

The FTT considered that the correct test for determining the nature of the appellant’s supplies was an objective test, based on how they would be characterised by the typical consumer. On that basis, ConquerMaths was a teaching product designed to improve maths understanding, not an examination service.

Additionally, if the correct test was rather a functional test, the result would be the similar.

Decision

The Tribunal did not consider that the product was a supply of examination services within Item 3. It found that the assessment had been made using best judgment by HMRC and accordingly that the appeal should be dismissed.

Commentary

This is probably the correct decision, although the examination and education exemptions are open to interpretation. Care should be taken by taxpayers that the exemption is correctly applied. Although the definition of examination services is wider than formal public examinations, it was not wide enough to encompass ConquerMaths.