In Sonder Europe Ltd v HMRC [2025] UT 00014, the Upper Tribunal (UT) found that the supply of holiday apartments to travellers was not eligible for the Tour Operators’ Margin Scheme (TOMS).
Sonder Europe Ltd (Sonder) acquired exempt leases of furnished and unfurnished apartments, lasting between two and ten years.
After redecorating and furnishing the apartments, Sonder supplied them as short-term holiday accommodation to business and leisure travellers.
- Sonder believed that the supplies fell within the Tour Operators’ Margin Scheme (TOMS) and calculated VAT on their margin accordingly.
- HMRC raised a £252,229 Assessment, arguing that the supplies fell outside the TOMS.
For supplies of holiday accommodation to be within TOMS, they must be ‘designated travel services’. A ‘designated travel service’ is a supply of goods or services:
- acquired for the purposes of [the supplier's] business, and
- supplied for the benefit of a traveller without material alteration or further processing.
Sonder appealed to the First Tier Tribunal (FTT), which Found that the supplies were covered by the TOMS on the basis that redecoration and furnishing were not material alterations to the apartments.
HMRC Appealed to the Upper Tribunal (UT), arguing that:
- The FTT had insufficiently assessed whether the TOMS applied to the supplies. The apartments were not supplied “without material alteration or further processing” and the supplies were not “for the direct benefit” of its customers.
- The FTT had looked at the apartments themselves and the physical changes made to them before being supplied to Sonder’s customers. In fact, the supply was being made for the right to use the apartment.
- Sonder had acquired rights over land from which it was making ‘in-house’ supplies to its customers.
The UT found that:
- The FTT had mischaracterised the precise nature of the supplies to which the TOMS eligibility test applies.
- The test that should be used was to compare the ‘full bundle’ of rights and services that passed to Sonder at the commencement of the leases with the ‘full bundle’ of rights and services passed to the traveller renting the holiday accommodation.
- The rights and services received by the traveller were markedly different to the rights and services that Sonder itself acquired on entering into the leases with the landlords. The leases granted to Sonder did not directly benefit the traveller unless the nature of the supply was materially altered.
Sonder was making in-house supplies which fell outside the remit of TOMS.
The appeal was allowed.
Editor's comment
This case is significant for property landlords who make supplies of furnished holiday accommodation because it sets a binding legal precedent.
If the supply is an ‘in-house’ supply, not one that is bought-in and re-supplied materially unchanged to customers, it is unlikely to fall within TOMS.
Accountants may have provided advice to clients based on the previous FTT ruling, which has now been found to be incorrect.
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