8:00 AM, 24th January 2025, About 5 hours ago
Text Size
If you’ve been enjoying affordable and flexible holiday lets in recent years, prepare for a potential shake-up. The recent HMRC v Sonder Europe Ltd ruling by the Upper Tribunal has sent shockwaves through the serviced accommodation industry. This decision redefines how VAT applies to businesses renting and subletting properties as holiday lets—and the fallout could directly impact holidaymakers.
From reduced availability to rising costs, here’s why your next holiday may look very different.
For years, many serviced accommodation providers relied on the Tour Operators’ Margin Scheme (TOMS). This VAT scheme allowed them to calculate VAT only on their profit margins, keeping costs manageable for businesses and affordable for holidaymakers.
But the recent ruling in Sonder Europe changes the game. The Tribunal determined that:
With VAT now applicable on the full rental income (not just the margin), many businesses face an effective 20% increase in tax liability. The result? Reduced availability of holiday lets and higher costs for travellers.
The increased VAT burden may push some serviced accommodation providers out of business altogether. Others may be forced to reduce their portfolios, letting go of properties they can no longer afford to operate.
“Holidaymakers could find it harder to secure short-term lets, especially during peak seasons,” warns one industry expert. “Fewer properties on the market mean less availability and more competition for bookings.”
For those who rely on serviced accommodation for unique stays or budget-friendly options, this could be a major blow.
For operators who manage to stay afloat, the increased VAT costs will likely be passed on to guests. With VAT now calculated on the full revenue rather than the margin, holiday lets could see price hikes of 20% or more.
“Families looking for affordable UK holidays may find themselves priced out,” says one travel consultant. “The days of cost-effective, flexible holiday lets could be coming to an end.”
This would narrow the price gap between serviced accommodation and traditional hotels, reducing the appeal of short-term lets.
The ripple effects won’t stop at accommodation. As holiday lets become more expensive, inflation could spread to other areas of the travel sector, from local attractions to dining and entertainment.
One frequent traveller commented, “We’ve already seen prices rise post-pandemic. Add this VAT change, and holidays could become unaffordable for many families.”
The implications of this ruling extend beyond holidaymakers. Local economies in tourist hotspots could suffer as fewer travellers opt for short-term lets. Reduced visitor numbers may impact small businesses, from restaurants to activity providers, that depend on holidaymakers for income.
Moreover, property owners who lease to serviced accommodation providers may find their tenants unable to renew contracts, leaving them with vacant properties and lost income.
As availability tightens, early booking will become essential. Locking in your holiday accommodation months in advance can help you secure the best options.
Popular tourist hotspots may see the sharpest increases in prices and reductions in availability. Exploring less-travelled destinations could save money and offer unique experiences.
Prepare for price hikes in accommodation and other holiday-related expenses. If serviced accommodation becomes too expensive, consider comparing costs with traditional hotels.
There’s still a chance that Sonder Europe will appeal the ruling to the Supreme Court, which could delay the full implementation of these changes. However, most experts agree that even if an appeal occurs, the fundamental principles established by the Upper Tribunal are unlikely to change.
“Travellers should prepare for a new reality,” said one VAT expert. “The days of cheap, plentiful holiday lets may be behind us.”
We’d love to hear from you!
Share your thoughts in the comments and join the discussion on the future of the holiday let market.
The HMRC v Sonder Europe Ltd ruling has set off a chain reaction in the serviced accommodation industry, with consequences that will be felt by holidaymakers, property owners, and local economies alike. With fewer choices and higher costs on the horizon, now is the time for travellers to plan ahead and adapt to the changing landscape.
The holiday let market is undergoing a transformation—make sure you’re ready for what’s next.
