Introduction of emergency accommodation may have unintended VAT implications for suppliers of student accommodation

Emergency legislation was recently introduced in Ireland in July 2024 which prohibits requiring students to agree to 51 week leases to let a room.

Subsequent to the changes, landlords are likely to grant lettings to others in student accommodation properties during the Summer months.

However, this could give rise to unintended VAT implications (both opportunities and risks) for landlords seeking to maximise yield from the property. In particular:

• The supply of student/residential letting is a VAT exempt activity.
• The supply of guest/hotel accommodation in a property is a VATable activity, chargeable at the reduced rate (currently 13.5%). In that regard, Revenue have stated in their published non-statutory guidance that “the provision of guest or holiday accommodation involves the active exploitation of property. It typically involves some additional service element which distinguishes it from the letting of property. This may include, for example, housekeeping, dining or reception services. All establishments providing guests with accommodation are supplying guest or holiday accommodation, […] [where a guest is] any person availing of an accommodation for leisure or business purposes. It is not limited to the provision of accommodation to tourists and holidaymakers.”

As you can see from the above, applying the correct VAT rate to a summer letting is a fact sensitive and complex exercise and the key distinction is whether the occupant could be regarded as a “guest”, rather than a student or an ordinary tenant. As such, and as a result of this change, landlords should carefully consider whether the use of its properties in the Summer months would constitute VAT exempt or VATable activities:

• If the landlord is continuing to supply VAT exempt services (i.e. residential, student letting or (for completeness, emergency accommodation)), no further action would be required (it’s a continuation of the existing VAT exempt business);
• However, if the landlord is supplying VATable services, then the following would apply:
  • RISK - It would need to charge VAT in respect of its supplies of guest accommodation and remit this VAT to Revenue in a timely manner in its VAT return; 
  • OPPORTUNITY  - it would be entitled to VAT recovery in respect of costs directly attributable to its VATable supplies;
  • OPPORTUNITY – It would be entitled to partial VAT recovery in respect of its general overheads;
  • OPPORTUNITY – (depending on the background history of the property), it would be entitled to a potential uplift/VAT recovery on a portion of VAT incurred in respect the acquisition and/or development of the property under the Capital Goods Scheme. 

Accordingly, given the complexity of the issue, please let us know if this is something that may impact on your business, as we would be more than happy to discuss the issues and provide.