The 28-day rule: when long-stay contractor accommodation stops carrying full VAT

Most people booking accommodation for a project team assume VAT is VAT — 20% on the invoice, reclaim it if you can, move on. For stays longer than four weeks that is not how it works, and the difference is large enough to change which option is cheapest.

What the rule actually says

HMRC calls it the reduced value rule. From VAT Notice 709/3, section 3.1:

This rule 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.

The mechanics, from section 3.2 of the same notice: if a guest stays more than 28 days, then from the 29th day you charge VAT only on the part of the payment that is not for accommodation. Where the charge is inclusive, it must be apportioned — VAT is due in full on meals, drinks and other services, and at least 20% of the remainder must be treated as being for facilities and taxed. If the true value of the facilities is higher, the higher figure applies.

Two things it is not. It is not an exemption — the notice is explicit that the supply "does not become exempt from VAT, it is still taxable and the normal input tax rules apply". And it is not a rate change; it reduces the value the rate is applied to, which is why it survived the end of the temporary hospitality rate on 31 March 2022.

What it's worth

A serviced apartment at £700 a week net, no meals, one contractor in place for twelve weeks:

Just under £900 per apartment, per quarter. On a ten-unit project that is £9,000.

A note on GOV.UK's own worked examples: section 8 of Notice 709/3 still calculates everything at the temporary 5% rate that ended on 31 March 2022. The method is right; the numbers are stale. The table above applies the same method at 20%.

Who this is actually worth money to

If you are VAT-registered and recover input VAT in full, the reduced value rule is a cash-flow benefit, not a saving. You were getting that VAT back anyway.

It is real money for anyone who cannot recover it — most obviously insurers placing displaced policyholders, since insurance is largely VAT-exempt, and any partly-exempt business. In those cases the 28-day rule is the difference between a recoverable cost and a cost.

The trap: rotating crew through the same flat

This is where most buyers get it wrong. The rule attaches to the individual occupant, not to the booking, the invoice or the apartment. Notice 709/3 section 3.3:

The rule does not apply to bookings by companies where the accommodation is used by a succession of short-term occupants, and each stay is less than 29 days at a time.

The notice's own example is airlines block-booking hotel rooms for crew stopovers. The construction equivalent is a two-week rotation through a project flat: same apartment, same spend, same supplier, and no reduced value at any point.

The other half of that paragraph matters just as much, because it is the one buyers assume works against them:

But where the supply is made to someone other than the individual who will be using the accommodation, but the stay by the individual is for more than 28 days, then the rule will apply.

So a company booking and paying for a flat for one named worker for three months does qualify from day 29. Being invoiced to the employer changes nothing. What matters is that one person's stay runs past 28 consecutive days.

Continuity is judged strictly. Section 3.3 again: a guest who stays three weeks in every month never qualifies. Five weeks, a week away, five weeks back qualifies only for the fifth week of each separate stay. Occasional weekends away, and stays where a retaining fee is paid, do not break continuity — and it does not matter whether the person returns to the same room.

Practical consequence: if a project runs longer than four weeks, assigning one person to one unit for the duration is cheaper than rotating them — before you compare a single nightly rate.

Does a serviced apartment even count?

The rule only applies to "a hotel, inn, boarding house or similar establishment". Serviced apartments sit inside that definition rather than outside it. VATLP11320 says Note (9) covers premises used by, or held out as suitable for, visitors and travellers consisting of furnished sleeping accommodation, which "consequently brings accommodation, such as serviced flats advertised for use by visitors and travellers, within the meaning of 'similar establishment'" — and that "the level of additional services being provided is irrelevant".

There is a boundary. The tribunals in International Student House and Acorn Management Services turned on whether occupants were genuinely "visitors or travellers"; students resident for several years were not, occupants on 15-week courses were. HMRC's own manual concedes the cut-off is unclear. Project workers on assignment sit comfortably on the qualifying side of that line, but a multi-year placement is a question for your adviser rather than a blog post.

The rule also does not apply to holiday accommodation (Notice 709/3, section 3.2).

The other side: can the employer deduct it at all?

VAT is one question; whether the accommodation cost gets relief is another, and it turns on whether the site is a temporary workplace.

EIM31836 is unusually helpful to anyone choosing apartments over hotels:

In many cases furnished or unfurnished accommodation is obtained as a cheaper and more convenient alternative to hotel accommodation. Provided that the total cost of the accommodation is appropriate to the business need and is reasonable and not excessive you should permit relief in full.

HMRC adds that the cost "should be accepted as reasonable where the total cost of providing accommodation does not exceed the cost of hotel accommodation of an appropriate standard", that reasonable furniture costs can be included, and that relief should be restricted "only in extreme cases" — for example where family accompany the employee, or the location was chosen for non-business convenience.

Then the 24-month rule, EIM32080. A workplace stops being temporary where the employee attends it during a period of continuous work that "lasts, or is likely to last, more than 24 months", with "continuous work" meaning 40% or more of working time at that place. Once the site is a permanent workplace, travel there is ordinary commuting and is not deductible.

The detail that catches people out is "or is likely to last". Relief stops when the expectation changes, not when the 24th month arrives. A 30-month contract fails the test from day one; an 18-month contract extended to 30 in month twelve stops qualifying in month twelve, not month twenty-four.

Construction specifically: lodging allowances

If you pay lodging allowance under a working rule agreement rather than booking accommodation directly, there is a documentation condition that is easy to miss. EIM71307:

Lodging allowances (sometimes known as accommodation, overnight or subsistence allowances) under working rule agreements are payable free of tax only if the operative has completed an application form.

The form certifies that the operative is maintaining dependants at their permanent home address while incurring the cost of lodging away. Without a completed form on file, HMRC's instruction to employers is to tax the allowance. Forms should be kept for production at a future compliance review. Single employees with no qualifying dependants can't complete it, but may still qualify under the separate procedures at EIM71310.

Booking the accommodation directly, rather than paying an allowance, sidesteps the paperwork question entirely — and is the point at which the VAT treatment above becomes yours to manage.

What to take from this

1. Past day 28, one occupant in one unit is materially cheaper than a rotation, because of how the VAT is valued rather than the nightly rate.
2. The saving is cash flow if you recover VAT, and real money if you don't.
3. Being invoiced as a company doesn't disqualify you — the 28 days attach to the person, not the booking.
4. Check the 24-month expectation at the point it changes, not at the point it expires.

If you are planning a stay past the four-week mark, the structure of the booking matters as much as the rate. Our pricing is built around long stays, Crew Pass covers rotating teams, and you can ask for a quote with your dates and headcount.

This is general information about published HMRC guidance, current at the date of writing, and not tax advice. Your own VAT position depends on facts we can't see from here — take advice before relying on it.