VAT on Serviced Accommodation: How the 28-Night Rule Works

The short answer: For a guest who stays more than 28 consecutive days in a hotel or “similar establishment”, HMRC’s reduced value rule means that from the 29th day you charge VAT only on the part of the payment that is not for the accommodation itself. HMRC’s Notice 709/3 names serviced flats as a similar establishment, but says the rule does not apply to holiday accommodation. Which side your property falls on is the question to settle with your accountant or HMRC before you quote anyone a long-stay VAT saving. Checked against GOV.UK on 2 November 2026.

Part of our series on direct booking websites that convert.

If you sell serviced apartments to corporate and relocation clients, long stays are where the money is, and VAT is where the confusion is. This page sets out what HMRC’s published guidance says, in plain terms, with the section for each point. It is general information, not tax advice.

What the rule is

The rule sits in paragraph 9 of Schedule 6 to the VAT Act 1994, and HMRC explains it in VAT Notice 709/3, Hotels and holiday accommodation. Section 3.1 of the notice describes it as a rule that “allows the charge for the actual sleeping accommodation element of the supply to be relieved from VAT when a guest stays for over 28 consecutive days”.

Two points from that same section are easy to miss:

• The supply stays taxable. HMRC says the accommodation “does not become exempt from VAT, it is still taxable and the normal input tax rules apply”.
• It is not a lower rate. The notice says the rule “operates to relieve part of the charge for the supply from VAT as opposed to reducing the rate of VAT charged”. You are still charging 20% VAT, on a smaller amount.

What changes from night 29

Section 3.2 says that if a guest stays for a continuous period of more than 28 days, “then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation”.

For the first 28 days you charge VAT on the full price. From day 29, the accommodation element drops out of the VAT calculation, and you charge VAT on what is left: services and facilities that are part of the charge.

For an inclusive charge, the notice gives a floor. When you split a bed-and-board price, you must “treat at least 20% of the remainder as being for facilities”, and if the true value of facilities is higher, you charge VAT on the true amount. If you apply 20% VAT to a minimum of 20% of the charge, the effect is roughly 4% of the total. That 4% is our arithmetic from HMRC’s two figures, not a number HMRC publishes, and it only describes the minimum case. Do not put it in a quote without your accountant’s sign-off.

Who can use it

Section 2.1 of the notice defines “similar establishments” as places with characteristics like hotels, inns and boarding houses, and “any premises, in which furnished sleeping accommodation is provided, that are used by or held out as being suitable for use by visitors or travellers (but not if such use is only occasional)”. The list that follows includes “motels, guesthouses, bed and breakfast establishments, private residential clubs, hostels, and serviced flats (other than those for permanent residential use)”.

So serviced flats are named. The condition is how the property is run and held out, not what it is called. Occasional use is excluded, which matters if you let a unit as serviced accommodation for part of the year only.

Why holiday lets are different

Section 3.2 says plainly: “The reduced value rule does not apply to holiday accommodation”. Section 5.8 repeats it: “There is no reduced value rule for holiday accommodation”.

Section 5.1 explains that accommodation “advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation”, and it lists flats among the property types that can be holiday accommodation. The same section says accommodation in hotels, inns, boarding houses and similar establishments is not holiday accommodation for VAT purposes.

That creates a real risk for operators who market the same flat to leisure guests and to corporate clients. How you hold a unit out is part of the test. If you are unsure which side a unit falls on, ask HMRC or an accountant who handles hospitality VAT, and ask in writing.

The stay must be continuous

Section 3.3 sets three conditions that catch operators out.

• One guest, one continuous stay. HMRC’s example: a guest who stays three weeks every month is charged VAT in full every time. A guest who stays five weeks, leaves for a week and returns for five more gets the relief only in the fifth week of each separate stay.
• Short absences can be ignored. A stay is not treated as ended if the guest is a long-term resident who leaves for an occasional weekend or holiday, a student who returns after vacation, or someone who pays a retaining fee. In those cases the first 28 days of the overall stay carry full VAT.
• Succession of short stays does not qualify. The notice says the rule does not apply to company bookings where the unit is used by a succession of short-term occupants, each staying less than 29 days. It does apply where a company books for one individual whose own stay is longer than 28 days.

This is why a corporate client asking to “swap staff in and out” on a 28-day cycle gets no relief, while one relocating a single employee for six weeks does.

What it means for your direct booking site

Long-stay corporate demand usually comes direct, because the client wants an invoice, a fixed monthly rate and one point of contact. That is covered in our guide to pricing serviced apartments for corporate bookings and winning corporate and relocation contracts.

For the website itself, three practical points:

1. Show the headline rate and say what is included. Do not advertise a VAT percentage unless your accountant has confirmed it for your property and your invoicing.
2. Make the long-stay enquiry route obvious. A monthly rate usually needs a conversation, and a clear “stays of 29 nights or more” path gets that enquiry started.
3. Keep invoices consistent with the rule. If you split accommodation from other charges, the split needs to be reasonable and recorded.

If you want to see where your own site loses long-stay enquiries, our free website audit checks that route among others.

What to do now

1. Decide how each unit is run and held out: serviced accommodation for visitors and travellers, or holiday accommodation.
2. Read sections 2, 3 and 5 of Notice 709/3 with your accountant.
3. Check how your invoices split accommodation from other charges for stays beyond 28 days.
4. Confirm any VAT claim in writing before it goes on your website or into a proposal.

Sources

All checked on 2 November 2026.

• Hotels and holiday accommodation (VAT Notice 709/3), GOV.UK, last updated 27 October 2026. Sections 2.1, 3.1 to 3.3, 5.1 and 5.8.

Frequently Asked Questions

What is the VAT 28-night rule?

It is HMRC’s reduced value rule for long stays in hotels and similar establishments. If a guest stays more than 28 consecutive days, from the 29th day you charge VAT only on the part of the payment that is not for the accommodation.

Does the 28-night rule apply to serviced apartments?

HMRC’s Notice 709/3 lists serviced flats, other than those for permanent residential use, as similar establishments. The rule does not apply to holiday accommodation, so how the unit is run and held out matters. Confirm your position with an accountant or HMRC.

Is VAT 4% after 28 nights?

No, not as a published rate. The accommodation element is relieved from VAT, and VAT at 20% is charged on the rest. For an inclusive charge, HMRC says to treat at least 20% as being for facilities, which works out at roughly 4% of the total in the minimum case. It can be higher.

Does a company booking several short stays qualify?

No. The notice says the rule does not apply where a company books accommodation used by a succession of short-term occupants, each staying fewer than 29 days. It does apply where one individual’s own stay is longer than 28 days.

Does a break in the stay reset the 28 days?

It can. The stay must be continuous. Short absences by a long-term resident, a student between terms, or a guest paying a retaining fee are ignored, but a guest who leaves and returns otherwise starts a new stay.

---

This page is general information for operators, not tax advice. VAT treatment depends on your circumstances. Check the linked guidance or speak to an accountant before acting on anything here.