Upper Tier Tribunal (“UTT”) releases its decision in the case of Sonder Europe Limited (“Sonder”) v. HMRC

Background

Following the FTT judgement in July 2023, Sonder Europe Ltd (“Sonder”) was held to be a “Tour Operator” for the purposes of TOMS meaning that it only needed to account for VAT on the margin received on the re-supply of short-term serviced apartment accommodation. This significant decision was thought to give businesses, who undertook similar activities of acquiring accommodation via a long-lease and supplying this on to business and leisure travellers without ‘material alteration’, an opportunity to gain significant VAT savings.

However, the decision from the UTT (released on 14 January 2025) has overturned the FTT decision and sided firmly in favour of HMRC.  The judgement weighed heavily on the specific facts of the Sonder leasing arrangements, including the responsibilities the appellant had under the long-term leases it acquired from third-party landlords and the specific short-term lease terms it entered in to with business and leisure travellers staying at its locations.

For a more detailed explanation of the case, please see our original article –  Potential VAT savings opportunity on the supply of Serviced Apartment accommodation – Claritas Tax.

Findings

In its judgement, the UTT found that the FTT had erroneously concluded that Sonder had made ‘material alterations’ to the bought-in supply, being the apartments acquired via long-leases from third-party landlords, and whether this supply could be said as being for the direct benefit of the traveller.

As Sonder acquired the right to use and occupy the apartments on a long-leasehold basis from the third-party landlords, this was held to be materially different to the short-term exclusive licences to occupy granted to the traveller. Due to this ‘material’ difference, the UTT determined that Sonder was making non-TOMS supplies to the traveller and therefore was precluded from operating the TOMS to account for VAT on receipts from customers. Put another way, Sonder would be required to account for the VAT on the full selling price, rather than just on the margin, although it would be able to obtain relief for input VAT incurred in making its supplies.

There was a difference of opinion on the definition of ‘material alteration’ between the two Tribunals, as the FTT held that as the changes to the apartments were purely decorative and cosmetic, rather than structural, and could be reversed, there was no material alteration to the apartments. The FTT described the difference between Sonder buying in accommodation under a long lease, and then making supplies of short-term accommodation, as “irrelevant” to the VAT treatment, and the judgement focused more on the reversibility of the physical changes which Sonder undertook to the units before it made the supplies to the travellers.

In contrast, the UTT’s view was that the acquisition of an unfurnished apartment under a long lease was held to be ‘materially different’ to supplying a furnished apartment under a short-term licence to occupy. A greater focus in the UTT’s judgement was placed on what was being bought-in and then re-supplied from a legal interest perspective, with this being a key determinant in the overturning of the FTT decision.

How we can help

If you would like to discuss this case and its implications (or indeed any other VAT-related matter), please do not hesitate to contact our Head of VAT, Richard Smith.