Date of issue: 12th December 2006

CHEAPER ROOMS AT THE INN

A VAT & Duties Tribunal decision is set to spread some Christmas cheer among not for profit organisations and local authorities, who often have no option but to place individuals in long term bed and breakfast accommodation because of the shortage of housing.

Chartered accountants Clement Keys say the ruling in the Afro Caribbean Housing Association tribunal case will be a big help to charities, who can now expect a reduction in costs because they will avoid a significant amount of the VAT.

Currently, VAT can be charged on a reduced value once a guest at a hotel or similar establishment has stayed there continuously for at least 28 days. However, this only benefits individuals who pay their own bill and does not apply if an employer, local authority or third party takes on the responsibility for settling the account.

As a result of the Tribunal decision the VAT rules will be changed and it no longer matters who is responsible for paying the bill, so long as the room is occupied by the same person for a continuous period of 28 days or more.

"Typically, a charity is unlikely to be able to recover VAT in such circumstances, so this legitimate reduction in the accommodation bill represents an important saving and is a very welcome early Christmas present," says Steven Simmonds, director of Indirect Tax Services at Clement Keys.

HM Revenue & Customs has confirmed it is not going to appeal the ruling and has invited organisations which believe they will be affected by the rule change to submit a claim for overpaid VAT (going back up to three years).

"While the Tribunal decision and change in VAT rules is very good news, the tax affairs of not-for-profit organisations are highly complex and we would recommend that they talk to their professional adviser to ensure they understand the position fully before going ahead with a claim," adds Mr Simmonds.