The same guest, the same room: VAT treatment changes materially at day 29 of a continuous stay. The mechanic, in VATA 1994 Sch 6 paragraph 9, reduces the taxable value of hotel and aparthotel accommodation once a continuous stay passes the 4-week mark, so that from day 29 onwards VAT is charged only on the portion attributable to facilities (cleaning, meals, services), with a 20 percent floor and an actual-value override where facilities cost more than 20 percent. The rule is automatic for qualifying stays and applies regardless of whether the operator is running a budget hotel, a serviced aparthotel, or a holiday cottage held out for tourist occupation.

Three things have made the 28-day rule more relevant in 2026 than in earlier years. First, the corporate-relocation and digital-nomad cohort of 30-to-90-day stays has grown substantially since the pandemic, pulling more bookings across the day-29 threshold. Second, the Upper Tribunal's January 2025 decision in Sonder Europe Ltd v HMRC ([2025] UKUT 14 (TCC)) narrowed the scope of TOMS for serviced-apartment operators, pushing many of those operators out of TOMS and back into the standard VAT regime where the 28-day rule operates directly. Third, HMRC compliance checks on the serviced-accommodation cohort have stepped up, with day-counting and facilities-percentage documentation increasingly scrutinised. This page sets out the statutory mechanic, the day-counting rules, the apportionment, the post-Sonder TOMS position, and a worked example.

The Long-Stay Moment: Why 28 Days Matters

UK VAT treats hotel-style accommodation as standard-rated under VATA 1994 Sch 9 Group 1 Note 9 to Item 1. The general rule is straightforward: a hotel, aparthotel, B&B, guest house, or serviced-apartment operator charges 20 percent VAT on the daily rate, regardless of stay length. Without further qualification a 90-day corporate relocation booking at a serviced apartment would carry 20 percent VAT on 90 days of consideration, materially more expensive than the equivalent rental of a private dwelling (which would be exempt under Sch 9 Group 1 Item 1 itself).

The 28-day rule corrects that distortion in part. Once a continuous stay passes 4 weeks, the accommodation element starts to look more like the supply of a tenancy than the supply of a hotel service, and the statute reflects that by reducing the taxable value from day 29 onwards. The rule is not an exemption: the supply remains within the scope of VAT and the operator remains VAT-registered. What changes is the value on which the 20 percent rate bites.

The Sch 6 Paragraph 9 Reduced-Value Mechanic

The statutory anchor is VATA 1994 Schedule 6 paragraph 9 (Valuation: special cases). Paragraph 9(2) provides:

"the value of so much of the supply as is in excess of 4 weeks shall be taken to be reduced to such part thereof as is attributable to facilities other than the right to occupy the accommodation."

HMRC's published guidance in Notice 709/3 builds out the mechanic. From the 29th day of the stay, VAT is charged only on the part of the daily payment that is not for accommodation. The operator must treat at least 20 percent of the remaining consideration as being for facilities. Where the true value of facilities is more than 20 percent, the operator must charge VAT on the higher true value.

The two practical positions follow. An operator that knows the true facilities cost is less than 20 percent of the daily rate (a serviced apartment offering only basic weekly cleaning) defaults to the 20 percent minimum from day 29. An operator whose facilities are genuinely more than 20 percent (a full-service aparthotel with daily housekeeping, breakfast, and concierge) must use the higher true value. Documenting the choice contemporaneously is essential because HMRC compliance checks routinely test the percentage.

Day-Counting Rules

The day-counting rule applies to a continuous stay by the same guest in the same accommodation. Three points deserve attention.

Continuity. The stay must be continuous. A guest who checks out on day 28 and re-books a fresh stay a few days later starts a new clock from day 1 on the second booking. HMRC's view is that the continuity test looks at substance over form: where a single occupation is artificially split into two bookings to avoid crossing day 29, HMRC may consolidate the period and apply the rule. Genuine breaks (the guest leaves, the room is sold to another guest in the interim) defeat continuity.

Same accommodation. The reduced-value treatment applies to the same room or apartment. A guest who moves from one room to another mid-stay starts a new clock on the second room. The position is fact-specific: a guest who is upgraded for a single night and then returns to the original room may be treated as continuing the original stay.

Same guest. A new lead guest on a booking re-starts the clock, even where the second guest takes over the same room. The booking record is the operative document.

Accommodation-vs-Facilities Apportionment from Day 29

The apportionment from day 29 is the key compliance question. Two methods are accepted by HMRC.

The 20 percent default. Where the operator's actual facilities cost is at or below 20 percent of the daily rate, the operator treats 20 percent of the daily rate from day 29 as facilities (standard-rated at 20 percent VAT) and 80 percent as accommodation (outside the scope of VAT). This is the cleanest method and is the default for serviced-apartment operators where the facilities offered are limited to weekly cleaning, linen change, and basic concierge.

The actual-value method. Where the true facilities value is more than 20 percent, the operator must charge VAT on the higher value. The true value is calculated by reference to the cost the operator incurs in providing the facilities (housekeeping labour, breakfast cost, consumables, services), expressed as a percentage of the daily rate. The operator should document the cost build-up and review it annually. Where the percentage exceeds 20, the actual percentage is used.

The key word is "must": the actual-value method is not optional where actual facilities exceed 20 percent. An operator that uses the 20 percent floor when actual facilities are 30 percent is under-declaring output VAT and exposed to assessment.

Aparthotels, Serviced Apartments, and Holiday Lets: Scope of the Rule

The 28-day rule applies to all establishments within Sch 9 Group 1 Note 9 to Item 1. The category covers:

  • Hotels in the ordinary sense.
  • Aparthotels (apartment-style hotels with reception services, daily housekeeping, and short-term bookings).
  • Serviced apartments held out for short-term occupation with hotel-style services.
  • Bed and breakfasts and guest houses.
  • Holiday cottages and self-catering accommodation marketed for tourist use.
  • Boarding houses and similar establishments.

The defining test is the character of the supply, not the building type. A modern apartment block let on AST tenancies for long-term residential occupation is residential, exempt from VAT under Sch 9 Group 1, and the 28-day rule has nothing to bite on (no standard-rated supply to reduce). The same building marketed as serviced accommodation with daily cleaning and short-term bookings is within Note 9, standard-rated, and the 28-day rule applies once any individual guest's stay crosses day 29.

TOMS Interaction: Sonder Europe UT 2025 and the Agent-vs-Principal Question

The Upper Tribunal decision in Sonder Europe Ltd v HMRC [2025] UKUT 14 (TCC) is the leading 2025 authority on the boundary between TOMS and the standard VAT regime for serviced-accommodation operators. The case concerned an operator that leased apartments from landlords on long internal-repairing-and-insuring leases and sub-let them to travellers on short-term bookings. The First-tier Tribunal in 2023 had held that TOMS applied; the Upper Tribunal overturned that ruling in January 2025.

The Upper Tribunal's reasoning turned on the materiality of the alteration. TOMS applies where a tour operator buys in travel-related services and resells them to travellers without material alteration, in essence acting as a re-seller. The UT held that Sonder's acquisition of a multi-year lease and the onward supply of a short-term licence to occupy were materially different bundles of rights, so Sonder was not re-selling but rather transforming the underlying supply. The result is that Sonder operates as a principal under the standard VAT regime, charging 20 percent VAT on its serviced-apartment supplies, and engaging the 28-day rule on long-stay bookings.

For operators in similar positions (lease-and-sub-let serviced apartment operators), the practical implications are significant. Operators that adopted TOMS following the 2023 FTT decision face HMRC reassessment under the standard regime, potentially with penalties. The 28-day rule applies to those operators in the same way as to a directly-operated aparthotel, and the daily-charge apportionment from day 29 should be implemented prospectively even where historic TOMS positions are being negotiated with HMRC.

Worked Example: 45-Day Aparthotel Stay

An aparthotel (let us call the operator Crescent Suites Ltd) accepts a 45-day corporate-relocation booking from a Manchester-based pharmaceutical group for one of its 2-bedroom serviced apartments. The daily rate is £180 plus VAT. Facilities provided include twice-weekly cleaning, weekly linen change, fresh towels on demand, and a welcome basket on arrival. Crescent assesses the true facilities cost at approximately 15 percent of the daily rate, which is below the 20 percent statutory floor. Crescent therefore uses the 20 percent minimum.

Days 1-28 (the standard-rated period). 28 days at £180 a night = £5,040 of consideration. Full 20 percent VAT applies. Output VAT = £1,008. Total billed (VAT-inclusive) = £6,048.

Days 29-45 (the reduced-value period). 17 days at £180 a night = £3,060 of consideration. Of this, 20 percent (£612) is treated as facilities and is standard-rated. 80 percent (£2,448) is treated as accommodation and is outside the scope of VAT. Output VAT on the long-stay portion = £612 x 20% = £122.40. Total billed for days 29-45 (VAT-inclusive) = £3,060 + £122.40 = £3,182.40.

Total bill on the 45-day stay. £6,048 + £3,182.40 = £9,230.40, of which £1,130.40 is output VAT.

Without the 28-day rule. 45 days at £180 plus 20 percent VAT = £45 x 180 x 1.20 = £9,720, with £1,620 of output VAT. The 28-day rule saves the guest £489.60 over the 45-day stay and reduces Crescent's output VAT exposure by the same amount.

Documentation Crescent retains. The booking record (45-night stay, single lead guest, single apartment, continuous occupancy). The daily-charge breakdown (showing the 20 percent minimum applied from day 29). The invoice issued to the corporate client (itemising the per-day VAT calculation across the two periods). The annual facilities-cost review confirming that actual facilities are below 20 percent (so the 20 percent floor applies). The full file is retained for six years in case of an HMRC compliance check.

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Common Misapplications

Six recurring misapplications surface in the serviced-accommodation cohort.

Charging 20 percent VAT throughout a long stay. The most common failure: operators that simply continue to charge 20 percent VAT on the full daily rate from day 29 onwards, ignoring the reduced-value mechanic. This over-collects output VAT and creates a guest-experience issue. HMRC will not raise the over-collection at a compliance check (because the operator has paid over more VAT than required), but the guest is entitled to a refund and may litigate.

Starting the reduced-value treatment from day 1. The mirror failure: applying the day-29 mechanic from the first day of a long stay. The first 28 days carry the full 20 percent on the full daily rate. Only day 29 onwards is reduced. An operator using the reduced-value treatment from day 1 under-declares output VAT and is exposed to assessment plus interest plus potentially penalties.

Splitting a continuous stay into two bookings. Operators sometimes engineer two consecutive bookings (days 1 to 28, then a fresh booking for days 29 to 56) to avoid the rule. HMRC's substance-over-form approach will consolidate the bookings where the guest is the same, the room is the same, the occupation is continuous, and the gap is artificial. The defence "we made two bookings" is not on its own enough.

Using the 20 percent floor where actual facilities exceed it. A full-service aparthotel with daily housekeeping, breakfast, and concierge may have actual facilities cost of 30 to 40 percent of the daily rate. Using the 20 percent floor in that scenario under-declares output VAT. The operator must use the higher actual figure.

Forgetting the rule applies to all in-scope establishments. Bed and breakfasts, guest houses, and short-let holiday cottages within Note 9 engage the rule on the same terms as a city-centre hotel. Smaller operators sometimes assume the rule is a hotel-only mechanic; it is not.

Confusing the 28-day rule with TOMS. The 28-day rule applies to direct-let accommodation by the operator that runs the establishment. TOMS applies to a tour operator buying in accommodation and reselling without material alteration. The two regimes do not overlap (an operator within TOMS calculates VAT on a margin, not on a per-day daily-rate basis). Post-Sonder, many lease-and-sub-let serviced-apartment operators have moved out of TOMS and into the standard regime, where the 28-day rule applies.

Documentation Discipline

HMRC compliance checks on serviced-accommodation operators typically test three things on a long-stay claim: (a) continuity of the stay (was it the same guest, in the same accommodation, for the full claimed period); (b) the day-29 rate switch (was VAT correctly recomputed from day 29, or did the operator continue to charge 20 percent on the full daily rate); (c) the facilities percentage (is the 20 percent minimum supportable, or does actual cost require a higher figure).

A clean documentation package addresses all three: booking record, daily-charge breakdown showing the rate switch, annual facilities-cost review evidencing the chosen percentage, and the invoice issued to the guest. Operators using property-management systems should configure automatic day-29 switching; manual spreadsheet processes are error-prone and rarely defend well.

Interaction with the Existing TOMS Framework Page

The 28-day rule and TOMS sit at different points in the serviced-accommodation VAT framework. TOMS applies to a tour operator buying in accommodation and reselling it without material alteration (e.g., a holiday package operator). The 28-day rule applies to direct-let accommodation supplied by the operator that runs the establishment. The Sonder Europe UT 2025 decision narrowed TOMS so that lease-and-sub-let operators are now outside TOMS, pulling them into the standard regime and engaging the 28-day rule directly. See our existing TOMS framework page for the TOMS-applicability test, and use this page for the 28-day-rule mechanic once TOMS is confirmed not to apply.

For VAT registration purposes, the threshold of £90,000 (with de-registration at £88,000) bites on the standard-rated portion of supplies. The reduced-value treatment from day 29 reduces the standard-rated value but does not affect the existence of a taxable supply for registration purposes. An operator near the registration threshold should model both short-stay and long-stay revenue when assessing the threshold position.

Authorities Cited