VAT ALERT – VAT Implications in Holiday Accommodation: Abbeyford Caravan Company (Scotland) Limited v. HMRC

This case delves into VAT treatment within the UK holiday accommodation sector, focusing on the complex issues of VAT apportionment between standard-rated goods and zero-rated accommodation services for holiday chalets and caravans. Case Background Abbeyford Caravan Company operates holiday parks in Scotland, offering fully furnished chalets, caravans, and associated facilities to holidaymakers, which collectively create […]

This case delves into VAT treatment within the UK holiday accommodation sector, focusing on the complex issues of VAT apportionment between standard-rated goods and zero-rated accommodation services for holiday chalets and caravans.

Case Background

Abbeyford Caravan Company operates holiday parks in Scotland, offering fully furnished chalets, caravans, and associated facilities to holidaymakers, which collectively create an attractive holiday experience.

In such cases, HMRC agree that the supply is mixed and provide a method to apportion VAT between the standard-rated items (content) and the zero-rated elements (accommodation).

The dispute emerged when Abbeyford’s submitted a claim to HMRC to recover VAT overpaid on the income generated from the sale of chalets and caravans. The core issue related to the apportionment method used to apportion the supply of content (standard-rated) from the supply of accommodation (zero-rating). Abbeyford argued that an apportionment method suggested by HMRC’s guidance had led to excessive VAT payments.

Key Legal Issues in the Case

  1. Dispute over Apportionment Method: Abbeyford contended that HMRC’s recommended method resulted in overpaid VAT and sought to reclaim £150,458.45. They requested HMRC’s approval to apply a new method retroactively to more accurately separate standard-rated content from zero-rated accommodation.
  • HMRC’s Rejection of Retrospective Application: While HMRC approved the new method for future periods starting April 2022, they denied retroactive application. HMRC argued that the previous method wasn’t erroneous and hence did not qualify for correction under an “error correction notification.”
  • Requirement of Evidence for Fairness: HMRC insisted that Abbeyford demonstrate the old method’s unfairness and prove the new method achieved a substantially more accurate attribution of values than the old method.
  • Substantial Difference in VAT Outcomes: Abbeyford highlighted the significant discrepancy, with output VAT under the old method totalling £296,906.85, compared to £150,458.45 under the new approach, covering the periods from 06/2018 to 03/2022.

Tribunal Ruling

The Tribunal ruled in Abbeyford’s favor, acknowledging the substantial reduction in VAT liability achieved by the new method amounted to an error that was eligible for the retrospective application of a new method and permitting Abbeyford to reclaim the overpaid amount.

This decision underscores the importance of accurate apportionment in VAT for holiday accommodation providers, especially when significant discrepancies arise from different methods.

Implications of the Decision

The outcome of Abbeyford Caravan Company v. HMRC has significant implications for the UK holiday accommodation sector, especially for businesses providing chalet or caravan accommodation with additional furnished facilities.

It is well established that the provision of fully equipped holiday accommodations can be separated into individual supplies for VAT purposes, meaning that different VAT rates apply to the content and accommodation. This decision clarifies the position regarding the how the two supplies can be apportioned going forward and retrospectively.

For businesses, this ruling establishes a more definitive approach to the VAT treatment of goods within holiday accommodations.

Businesses in similar industries should review their VAT practices in light of this decision and consider submitting a similar claim.

Deeks VAT Consultancy would be happy to provide a no obligation consultancy to discuss this matter in more detail.

For any VAT or TAX Enquiries contact:   

Jane Deeks, Managing Director   

   

jane@deeksvat.co.uk   

   

07710553831   

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