Reelreed, the owner of over 200 short-term let apartments in Chelsea, was ‘careless in submitting VAT returns’ and owes £4.5m as they were run like a hotel
The issue was that HMRC considered the flats at Chelsea Cloisters to be providing the same service as hotels and therefore liable for VAT while Reelreed rejected this position.
Originally, HMRC issued VAT assessments of £4.8m for unpaid tax but this was later reduced to £4,572,415.
Reelreed defended itself, stating that ‘it objects to HMRC’s assertion that its behaviour was careless to engage the penalty in the first place.
‘The assessments should not have been raised as they departed from a legitimate expectation HMRC had engendered in Reelreed as a result of previous VAT inspections.’
The apartments in question could all be used similarly to a rental and all had the white goods necessary to be self-sufficient, therefore Reelreed claimed the flats were not the same as hotel accommodation. The apartments also did not offer room service, did not charge per person and there were no additional charges for extra guests.
All the self-sufficient buildings were registered under residential use for council tax purposes while the bar, two restaurants and the attached offices were classed under commercial use for council tax.
However, on the website, the block is advertised as having a maid service, a hairdressing and beauty salon, babysitting/cot hire, a laundry service, and the ability to book theatre tickets for the guests. This appeared to contradict the claim of it not being like a hotel.
The First Tier Tribunal (FTT) based its decision on Note 9 of section 31 VATA which states: ‘“Similar establishment” includes premises in which there is provided furnished sleeping accommodation, whether with or without the provision of board or facilities for the preparation of food, which are used by or held out as being suitable for use by visitors or travellers.’
The term ‘visitors’ was scrutinised in the previous case of International Student House v CCE with the tribunal stating: ‘The term “visitors” used in Note 9 cannot be intended to be used in the sense of “visitors to the United Kingdom”. A visitor is, in the normal use of the English language, a person who visits a place or person. A traveller is one who travels from one place to another.’
Reelreed argued that ‘the concept of a visitor or traveller must therefore be construed as a visitor or traveller to a hotel or seeking accommodation in a similar sector. Such a visitor will typically be seeking leisure or holiday facilities, with a high degree of integrated services for a transient period’.
HMRC rejected this position, arguing that ‘a visitor is someone who is visiting an area for a particular reason and whose stay does not have a sufficient degree of permanence to mark them out as a resident’.
The tribunal drew attention to marketing campaigns on the company website which mention sites in London ‘for leisure and business travellers’ and claims that the flats host ‘thousands’ of residents a year.
The tribunal defined the term visitor as ‘referring to a person who is present in a particular place without making it their home, ie, they are not staying there with any degree of permanence, and who has come to a particular place in circumstances, or for a particular purpose, which means that they need relatively short-term (and therefore to some extent serviced) accommodation.’ Reelreed argued that this described their apartments. However, Reelreed then pushed that stays of over 28 days should be deemed exempt to which the tribunal disagreed.
The FTT concluded that Chelsea Cloisters was an establishment similar to a hotel and therefore liable for the VAT payment as it fell within Note 9 that ‘premises where furnished sleeping accommodation is provided which is used by or held out as being suitable for use by visitors or travellers’.
The penalty appeal was also dismissed as Reelreed did not take ‘reasonable care’ when dealing with VAT. The FTT said: ‘There is no evidence of Realreed ever having taken considered professional advice about its VAT affairs.’