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MHA MacIntyre Hudson has revealed it secured a win for Errol Willy, who runs the Errol Willy Salons Ltd hair salon in Cardiff, against HMRC which was claiming he had to pay VAT on the rent he charged to two self-employed beauticians using his two spare first-floor rooms.
If HMRC had been successful, potentially any businesses letting out a room to a tenant could have found themselves subject to an additional VAT charge. In the case Willy was represented by Glyn Edwards, VAT director at MHA.
Although rent relates to a supply of land and as such is exempt from VAT, HMRC contended that Errol Willy Salons Ltd provided the beauticians with a package of services rather than just two rooms. The services included access to the staff toilets and rest area, the services of a receptionist as well as light, heat and advertising. As such HMRC issued a VAT assessment for £18k based on the rent Willy charged the beauticians.
The First-Tier Tax Tribunal agreed with Willy that the additional services he was providing his tenants were incidental. Access to the staff toilets, use of the receptionist on occasion and the small advert provided by Willy were deemed to be inessential to the beauticians’ business.
In the court’s judgement the predominant supply made by Willy to the beauticians was the rent of a room and this had properly been treated as VAT exempt.
Glyn Edwards, VAT director at MHA MacIntyre Hudson, said: “If HMRC had succeeded in its case then thousands of salons would have been vulnerable to similar attacks whenever additional services were supplied along with room hire to beauticians operating independently in a salon.
“A victory for HMRC could have had a wider impact too. Potentially any businesses letting out a spare room to a tenant (such as an accountant or solicitor letting a room to a financial advisor) could have become vulnerable to a VAT assessment. So a huge number of small businesses and some larger ones renting out spare rooms have dodged a bullet here.”
Willy added: “I hope this case helps other businesses who find themselves in similar situations. The case became deeply personal to me, and I felt compelled to keep up the fight because of my late wife Michelle who sadly passed away in 2019 while we were in dispute with HMRC. She would have been delighted with our success this week.”
