From time to time, our helpline receives questions about beach huts. Now some of you might entertain idyllic thoughts about carefree fun and holidays in the sun, or perhaps flinch at painful memories of sunburn and sandy sandwiches. Many will then dismiss them as being relatively simple things and unlikely candidates for causing headaches and confusion. Well, in the world of VAT, at least, you’d be wrong.
Just as the beach huts need to be erected on a sturdy base, to identify the VAT treatment correctly, we need to understand the basis on which they are being provided.
The starting point is that there is no legal compulsion for a local authority to provide beach huts. So, if your authority provides beach huts, it is a business activity.
However, no single VAT liability applies to all beach hut charges.
Whether it’s a freehold, leasehold, or a license to occupy that is being provided, the VAT liability could be either standard rated or exempt; which one depends on the facts such as how old the beach hit is and how you are being paid for it.
Not just beach huts!
Along with holiday chalets, caravans, houseboats, and tents (and indeed bare land on which any of these types of buildings are erected or moored), beach huts are classified as ‘holiday accommodation’ because there is a restriction on their year-round occupation (VAT Act 1994 Schedule 9 Group 1 Note 13).
So, should we be adding VAT?
The general rule is that a supply of holiday accommodation is specifically excluded from the exemption for land (VAT Act 1994 Schedule 9 Group 1 Item (e)). This exclusion generally makes them a taxable supply, but there are exceptions.
Perhaps we should split this down into two parts: first, the supplies that are taxable (standard rated), and secondly, the exceptions.
Hut rentals and sales of ‘new’ beach huts – Standard Rated
The general rule applies to the freehold sale of a new beach hut (ie one that is less than three years old). It also applies to any tenancies, leases, and licenses to occupy beach huts (of any age) where payment is due periodically (eg rental payments). These are all taxable at the standard rate of VAT.
Sales of ‘old’ huts for a single ‘premium’ – Exempt (unless opted to tax)
The exception to this general rule, and one which is therefore exempt from VAT (subject to the option to tax), is where the holiday accommodation is more than three years old. But only if it is being sold in return for a single payment (or premium). The sale can be a freehold, a tenancy, or a lease or license. It is the age of the hut and the form of payment that matters in this case.
Beach hut ‘licenses’ between 15 July 2020 to 31 March 2022
Of course, only recently, the world of beach huts has been an even more confusing place. Between 15 July 2020 and 31 March 2022, the temporary reduced rate (first 5%, then 12.5%) applied to any grant of a license to occupy any holiday accommodation. From 1 April 2022, the temporary reduced rate no longer applies, so the beach hut licenses are standard rated (or exempt!) once again.
Still on shaky ground?
Before we move into the (hopefully sunny) summer months, if you are at all unsure and need assurance that you are applying the correct VAT treatment for your beach huts (or other holiday accommodation), please email the email@example.com, or call 0207 060 9265.