Date of issue: 6th June 2006

NEW VAT RULES ON HOTEL ROOMS COULD MEAN REFUNDS

Chartered accountants Clement Keys say businesses could be due a VAT refund after
HM Revenue & Customs changed the way it interprets the VAT liability of hotel rooms hired out for meetings, functions and conferences.

Historically, HM Revenue & Customs has accepted that the hire of a hotel room for a meeting was an exempt supply, unless the option to tax had been exercised. However, where a hotel charged a fixed 24-hour delegate rate - which included additional services such as overnight accommodation and meals - the whole charge was considered to be a single standard rated supply.

Now, HM Revenue & Customs accepts that this interpretation was incorrect and businesses are entitled to identify and treat an element of the delegate charge as relating to the room hire, and therefore VAT exempt (providing there is no option to tax in place).

"This move brings the VAT treatment of the 24-hour delegate rate in line with current practice concerning the 8-hour delegate rate and businesses are now invited to seek a refund of any VAT they believe they have overpaid, basing their claims on what is referred to as a 'fair and reasonable' method," explains Director of VAT Services Steven Simmonds.

Where the VAT overpaid amounts to more than £2,000 a voluntary disclosure should be made in accordance with VAT leaflet 700/45 'How to correct VAT errors and make adjustments or claims'. Claims for less than £2,000 should be adjusted on the company's next VAT return.

Clement Keys believes that HM Revenue & Customs may be obliged to pay statutory interest because the overpayments have arisen due to its mistaken interpretation of the law.

Mr Simmonds therefore recommends that any claim to recover VAT that has been overpaid on the hire of hotel rooms for meetings or conferences should be notified separately to
HM Revenue & Customs, along with a request for statutory interest to be paid.