Hotels across Wiltshire that are licensed to host weddings are being warned to check their tax position after a recent Tribunal decision left one hotelier with a bill of more than £50,000 for unpaid VAT.
The decision now puts 78 licensed wedding venues across Wiltshire at risk of being audited by the taxman to determine how they account for VAT.
The case was brought by the owners of the Glendorgal hotel in Newquay, Cornwall (Blue Chip Hotels Limited). HMRC assessed the company for over £50,000 of underpaid VAT relating to the hire of the hotel’s Tamarisk Room, which was licensed to host civil wedding ceremonies.
HMRC argued that VAT should have been charged on the Tamarisk room hire charge if the hotel was also used to host the wedding reception. The hotel was forced to prove that the payment for hire of the Tamarisk room was a VAT exempt supply of land, regardless of the other services it provided the wedding party.
The Tax Tribunal agreed with HMRC that the hire of the room was subject to VAT at the standard rate of 20 per cent, but for a different reason than that argued by HMRC. As a result, the company will now have to pay HMRC’s assessment unless it appeals.
The Tribunal found that when the Tamarisk room is hired as part of a wedding package, a single VAT-able supply is being provided. While this broadly supports HMRC’s current policy, the Tribunal went further and suggested that the provision of licensed premises in which a civil wedding could legally be carried out should not be considered a VAT exempt ‘passive letting of land’, a point that HMRC has accepted until now. As a wedding licence must afford the general public access to a wedding ceremony, the wedding couple could not have the ‘exclusive’ use of the room required to exempt the supply from VAT. The hire of the room for the ceremony was therefore a separate supply, subject to VAT.
Steve Chamberlain, a VAT director at accountants RSM in Bristol said: “Organising a wedding is incredibly expensive and this decision will mean that engaged couples will now be much less likely to be able to hire a licensed wedding venue that doesn’t charge VAT.
“There is also a real danger that hotels could find themselves coming under HMRC’s microscope. There are 78 licensed wedding venues across Wiltshire. They are now at risk of being audited by HMRC to determine how they account for VAT. Recently, we’ve also seen an increasing willingness by HMRC to challenge or restrict VAT recovery on refurbishment of hotels correctly treating income as VAT exempt.
“Hotels would do well to keep their VAT position under review to avoid any unexpected and unpleasant surprises.”