HM Revenue & Customs’ (HMRC) VAT guidance shows that the label attached to an accommodation business does not necessarily determine its tax treatment.
Serviced flats used or held out as suitable for visitors and travellers can fall within the same VAT rules as hotels and other “similar establishments”, regardless of the level of additional services provided.
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For hotel owners, operators and developers, the distinction matters because accommodation in hotels, inns, boarding houses and similar establishments is excluded from the normal VAT exemption for land. Hotel and similar accommodation is generally subject to VAT at the standard rate of 20%.
HMRC’s VAT Land and Property manual section covering hotels and similar establishments was updated on 15 December 2025. Its guidance sets out how the rules can apply to accommodation that does not fit neatly into the traditional hotel model.
How HMRC defines a hotel
UK VAT legislation does not define “hotel”, “inn” or “boarding house”. HMRC therefore says the terms should be given their ordinary and natural meanings.
The rules also cover “similar establishments”, creating a wider category for accommodation that may not be a conventional hotel but nevertheless performs a comparable function.
HMRC says whether an establishment is similar to a hotel, inn or boarding house can be a question of fact and impression. Its guidance considers both the underlying purpose of the establishment and its characteristics and functions.
Relevant characteristics can include temporary accommodation, accommodation being the establishment’s main commercial purpose, booking arrangements, lockable rooms, management or supervision, and services such as cleaning and laundry. Not all of these features need to be present.
Where serviced apartments and aparthotels fit
HMRC provides a particularly important test for accommodation used by visitors and travellers.
Its guidance says the definition of a “similar establishment” includes premises providing furnished sleeping accommodation that are used by, or held out as suitable for, visitors or travellers.
This expressly brings serviced flats advertised for visitors and travellers within the definition. HMRC also states that the level of additional services provided is irrelevant for this test.
That means an accommodation business does not necessarily fall outside the hotel VAT rules because it provides self-contained units, kitchens or living areas, or because it offers fewer traditional hotel services.
An aparthotel may combine hotel-style accommodation with kitchens and living space, while a serviced-apartment business may operate with a different service model from a conventional hotel.
Neither the product label nor the level of additional services, on its own, determines the VAT treatment where the visitors-and-travellers test applies.
This does not mean that every serviced apartment automatically falls within the hotel VAT rules. HMRC treats the visitors-and-travellers provision as an extended meaning of “similar establishment”. Where that test does not apply, the wider characteristics and purpose of the accommodation must be considered.
What characteristics matter?
Where the visitors-and-travellers test does not settle the question, HMRC looks more broadly at the characteristics and purpose of the establishment.
Accommodation is less likely to be considered a similar establishment where providing it is subordinate to another objective, such as education or care. Selectivity over residents and a high degree of care, supervision or control can also point away from hotel-type accommodation.
HMRC also considers practical features.
These include whether occupants have a formal tenancy or occupancy agreement, whether the accommodation is their main place of residence, whether they can bring their own furniture or install fixtures, how the building is treated for rating purposes and whether the establishment competes with hotels for customers.
No single feature necessarily determines the outcome.
This is particularly relevant to apartment-style accommodation. HMRC’s guidance notes that supplying an entire property, rather than simply a room, does not necessarily prevent accommodation from being treated as a similar establishment.
How VAT applies to longer stays
Length of stay creates another potential overlap between hotel and residential accommodation.
A guest staying for several weeks or months does not automatically turn hotel or similar accommodation into VAT-exempt residential accommodation. Instead, specific VAT rules apply where an individual stays continuously for more than 28 days.
From the 29th day, the reduced-value rule means VAT is charged only on the part of the payment that is not attributable to the accommodation itself. Charges for facilities and other taxable services remain subject to VAT. The accommodation supply does not simply become VAT-exempt.
The rule is particularly relevant to extended-stay hotels, aparthotels and serviced-apartment businesses where guests may remain for weeks or months.
What it means for hotel operators
For hotel owners, operators and developers, the practical significance is that changing a property’s physical product or service model does not necessarily change its VAT classification.
Introducing self-contained units, reducing reception services or offering accommodation with kitchens does not, by itself, take a property outside the hotel and similar-establishment rules.
Equally, describing a property as an aparthotel or serviced apartment does not determine its VAT treatment.
Instead, the way accommodation is supplied, who it is intended for, its underlying purpose, occupancy arrangements and the wider characteristics of the operation can all be relevant.
The distinction is increasingly relevant to accommodation businesses operating across conventional hotels, extended-stay properties, aparthotels and serviced apartments. These models can differ significantly in their physical layout and service levels while sharing some characteristics of hotel accommodation.
For VAT purposes, HMRC’s approach is therefore less concerned with the terminology used by an operator than with the substance and characteristics of the accommodation being supplied.
The key question is not simply: “Is this a hotel?”
It is whether the accommodation, its purpose and the way it is supplied bring the operation within the rules for hotels, inns, boarding houses and similar establishments.
