Do You Have to Charge VAT on a Holiday Let or Serviced Accommodation?

If you let out holiday accommodation or run a serviced-let business, there is a VAT point that surprises a lot of landlords: your income is treated completely differently from ordinary residential rent. Letting a flat to a long-term tenant is exempt from VAT, so it never counts towards registration. Holiday and serviced accommodation is not exempt, it is standard-rated, which means once your income is large enough you must register and charge 20% VAT on what your guests pay. This guide explains the difference and what it means for your numbers.

Residential rent is exempt; holiday lets are not

The key distinction is the type of supply. Long-term residential letting is an exempt supply for VAT, so a buy-to-let landlord never charges VAT and their rent does not count towards the registration threshold. Holiday accommodation is specifically excluded from that exemption and is standard-rated. HMRC sets this out in its VAT notice on hotels and holiday accommodation, which confirms that holiday lets and similar short-stay accommodation fall within the standard rate. Serviced accommodation, where you provide a property on short stays often with extras such as cleaning or linen, sits in the same standard-rated category.

One point worth clearing up: the income-tax regime for furnished holiday lettings was abolished from April 2025, so the old FHL income-tax advantages no longer exist. But that change did not touch VAT. For VAT purposes, holiday and serviced accommodation has always been, and remains, standard-rated. The two systems are separate, and losing the income-tax label does not make your lettings VAT-exempt.

Why this drags you towards the £90,000 threshold

Because holiday and serviced-let income is taxable for VAT, it counts towards the VAT registration threshold, which stands at £90,000 of taxable turnover in any rolling twelve-month period. A residential landlord can collect far more than that in rent and never go near VAT, because exempt rent does not count. A holiday or serviced-let operator crossing £90,000 must register, as covered in our guide to when your business needs to register for VAT. From that point you charge 20% VAT on your nightly rates, which either comes out of your margin or pushes your prices up.

The threshold is a forward-looking as well as a backward-looking test, so a growing serviced-accommodation business needs to watch it carefully, which is the subject of our piece on the rolling 12-month threshold. Splitting a business artificially to stay under the line is something HMRC actively challenges, so that is not a safe plan.

The other side: you can reclaim input VAT

Standard-rating is not all cost. Once registered, you can reclaim the VAT you pay on the things that go into the business, cleaning, furnishings, repairs, management fees and platform commissions, which an exempt residential landlord cannot recover at all. For an operator with significant costs, that recovery softens the blow of charging output VAT, and in some cases voluntary registration is worth considering. Whether it nets out in your favour depends on your cost base and your guests, since VAT is easier to absorb with business guests who can reclaim it themselves than with private holidaymakers who cannot.

What to do as you approach the threshold

If your holiday or serviced-let income is climbing towards £90,000, the worst outcome is realising too late and finding you should have been charging VAT for months. The professional body ICAEW keeps a useful overview of VAT issues that is a sensible reference, but the practical step is to model the effect of registration on your own rates and costs before you cross the line, and to decide whether you absorb the VAT or reprice. If your business has instead shrunk below the threshold, deregistration may be an option.

If you run holiday lets or serviced accommodation around Harrow and are unsure whether you need to register, or whether charging VAT would cost or save you money, send us your turnover and a rough idea of your costs through the form on this page and we will tell you where you stand and what to do before you cross the threshold.