VAT on Serviced Accommodation: The 28-Day Rule Explained

I work with property management companies running serviced accommodation on behalf of landlords, short-term, furnished lettings rather than standard buy-to-let, and the question I get asked most, once people know it's standard-rated at all, is whether there's any way to soften that VAT bill on longer bookings. There is, and it's a genuinely underused piece of HMRC's own rules.

VAT works differently for serviced accommodation than for a normal let

Ordinary residential letting is VAT-exempt. Serviced accommodation isn't. HMRC treats it more like hotel or guesthouse accommodation, which means it's standard-rated, and once your turnover crosses the £90,000 registration threshold, you need to be registered and charging VAT correctly. This catches people out in both directions: some are charging VAT they don't need to on genuinely exempt income, and others have crossed the threshold without registering and don't realise it until HMRC does.

Get the VAT position wrong for long enough and it becomes an expensive problem rather than a paperwork one. My VAT returns service covers exactly this, registration, scheme suitability, and the ongoing returns themselves.

The 28-day rule can cut your VAT rate on longer stays

HMRC calls it the reduced value rule, and it's set out in VAT Notice 709/3. Most people in the sector have never heard of it, which means most portfolios are quietly overpaying VAT on their longer bookings without realising it.

Here's the mechanic. For the first 28 nights of a single guest's continuous, unbroken stay in the same accommodation, you charge standard-rate VAT (20%) on the whole amount, exactly as you would for a one-night stay. From the 29th night onward, that changes: only the "facilities" element of the charge, at least 20% of it under HMRC's own minimum, remains taxable, and the rest, the accommodation element, falls outside the scope of VAT altogether. Apply the 20% VAT rate to that 20% facilities floor and the result is an effective VAT rate of around 4% on the remainder of that guest's stay, rather than the full 20%.

A rough example: a guest booked at £100 a night is paying £20 VAT a night for the first 28 nights. From night 29, if you're using the 20% minimum facilities value, that drops to roughly £4 a night, because only £20 of the £100 is treated as taxable facilities rather than VAT-free accommodation. Where the genuine cost of facilities, breakfast, cleaning, reception, gym access and so on, is actually higher than 20% of the charge, HMRC expects the higher figure to be used instead, so the saving narrows accordingly. The 20% floor is a minimum, not a guarantee.

Three things matter about who this actually applies to. First, it's per individual guest in a specific room, not per booking or per contract, so a new guest, or the same guest moving room, resets the clock back to day one. Second, it only applies to a genuinely continuous, unbroken stay. A stream of different guests each staying under 29 days, even if they're all booked through the same company or the same channel, doesn't qualify, and HMRC has been explicit that it looks through arrangements designed to get around this, such as an employer rotating different staff through the same room on a rolling basis. Third, artificially splitting one guest's long stay into separate shorter bookings specifically to dodge day 29 is the kind of thing HMRC can and does challenge on substance rather than form.

None of this changes whether the accommodation counts as serviced accommodation for VAT purposes in the first place, that's the separate question covered above. What it does mean is that a portfolio with genuine long-stay guests, corporate lets, relocations, extended stays, could be sitting on VAT savings it isn't claiming, or worse, could be misapplying the reduced rate to short-stay turnover that doesn't qualify for it at all. Either way is worth checking properly rather than guessing.

Multiple landlords need to stay properly separate

If you're managing serviced accommodation on behalf of several different landlords, each one needs their own clean, separate figures, income, costs, VAT position, and what they're actually owed. Mixing that up, even accidentally, creates a mess that takes real time to untangle and can undermine a landlord's confidence in how their money is being handled. This is exactly the kind of structure I set up properly from day one, so year-end figures and any landlord query can be answered properly, for the right property, every time.

What to actually do about it

And whatever VAT scheme you're on, the quarterly filing deadlines themselves don't change for serviced accommodation, I've set those out properly in this autumn's VAT quarter countdown.

If you haven't checked whether your longer bookings qualify for the reduced value rule, or you're not confident your booking system distinguishes a genuine long stay from a run of short ones, it's worth a proper review rather than waiting for HMRC to raise it first. That's Courage in practice, one of the five principles I hold myself to, telling you what the figures actually say, early enough to act on it. You can read more about that on my method page.

If you want to talk through what this actually means for your portfolio, book a free discovery call or email me directly at daneon@dfaccounting.co.uk.