It’s nearly time for the Christmas party season, and if you have a room or venue that you hire out, ordinarily this room hire is exempt from VAT. The reason - because it is a supply of land and there is an exemption for the supply of land in the legislation.

But what would a VAT exemption be without exceptions.

To add to the confusion, it may be the case that in the real world more often than not room hire is in fact taxable. This is because either, it is in fact not a supply of land (or in other words the room/space itself is not the predominant supply), or although it is a supply of land but comes within one of the exclusions from exemption.

Let’s look at some of the more common exceptions when it comes to room hire.

These include rooms for the purposes of:

• catering (but only in hotels, inns, boarding houses, and ‘similar establishments’);
• the right to occupy a box, seat or other accommodation at a sports ground, theatre, concert hall or other place of entertainment;
• sports facilities (which could include a hall with markings on the floor);
• holiday accommodation; and
• for storage of goods.

When you consider that on top of this, if the main element of what you are providing is not land, I.e., although an important element of your supply is not the ‘predominant’ element, it will not be exempt from VAT under the land exemption in any case.

Wedding packages are the case in point here. Based on extensive case law over the years, we would argue that it is not possible to successfully argue that a venue can be hired for a wedding consisting only of the supply of VAT exempt land, or that all other supplies are ancillary to the supply of land. Many have tried and the courts have decided that it just doesn’t fly.

The tricky thing with room hire is that depending on the circumstances there could be costly consequences. For example, exempt room hire in the wrong circumstances could trigger a requirement to repay VAT recovered on the purchase of a building or refurbishment costs going back as many as 10 years ago.

The message is here is that there are lots of VAT pitfalls relating to room hire and as with all transactions related to property an unintended VAT consequence is almost impossible to unpick to avoid a expensive VAT bill.

Sadly, there is no one size fits all scenario. To ensure that you understand the correct VAT treatment of any room hire scenario get specialist VAT advice. It could be costly if you get it wrong.