Protentional VAT Saving on Serviced Accommodation via Tour Operators Margin Scheme (TOMS).

Sonder Europe Limited v HMRC [2023] TC08853 – Protentional VAT Saving on Serviced Accommodation via TOMS.

Did you know that Sonder Europe Limited has scored a win in its legal battle against HMRC over the Tour Operators Margin Scheme (TOMS)?

This victory carries significant implications for those in the serviced accommodation industry, potentially leading to substantial VAT refunds.

The case

Sonder leased apartments and offered them as short-term accommodation to travellers. HMRC claimed VAT on the full selling price, arguing that Tour Operators Margin Scheme didn't apply. However, the First Tier Tribunal granted Sonder’s appeal, stating that:

1. Sonder qualifies as a "tour operator" for the purpose of TOMS.
2. Sonder's alterations to the apartments, like painting and furnishing, did not constitute significant changes under TOMS, thus TOMS still applied.

The outcome

The provision of rented apartments will potentially fall under the scope of TOMS.

TOMS is compulsory and where it applies VAT is due only on the profit margin instead of the entire selling price of the accommodation. This can result in significant VAT savings.

While decisions from the First Tier Tribunal aren't binding, they should be considered in similar cases and are often persuasive.

What does this mean for serviced accommodation providers?

• If you already use TOMS, keep doing so.
• If you haven't been using TOMS but your services qualify, start using it.
• If you haven't used TOMS in the past and your services qualify, you can make a claim to correct VAT over-payments from the past four years.

If you buy accommodation and pay VAT on the full selling price under regular VAT rules while letting it out as serviced accommodation, you might have overpaid VAT. In such cases, you may be able to submit a claim going back four years to recover the excess VAT paid to HMRC.

HMRC has 56 days to potentially appeal this decision to the Upper Tier Tribunal. If they do, you can align your claim with this case.

Time is of the essence. Act swiftly, as there's a four-year statutory time limit for submitting claims. Due to TOMS' annual adjustment requirement, delaying action could result in forfeiting a year's claim.

If you would like to discuss this case or any other matter related to TOMS, please do contact us