Can rent-to-rent serviced accommodation still use TOMS after the Sonder ruling?

VAT, TOMS and TOGC are UK-wide, so the same answer applies in England, Scotland, Wales and Northern Ireland. The practical issue is not whether “rent-to-rent” has its own VAT category, but whether the particular supply is bought-in accommodation, an in-house accommodation supply, or a transfer of business assets.

Does the Sonder ruling mean you can no longer use TOMS?

Sonder’s Upper Tribunal loss does not finally end TOMS for rent-to-rent serviced accommodation, because the Court of Appeal has stayed Sonder’s own appeal, so HMRC’s win could still be overturned. TOMS itself still exists: HMRC describes it as “a special scheme for businesses that buy in and resell travel, accommodation and certain other services as a principal or undisclosed agent.” What Sonder lost on was its own model: the Upper Tribunal held that “the services supplied by Sonder to the traveller were its own in-house supplies,” outside TOMS. That makes the decision dangerous for operators on long residential leases who have been paying VAT only on the margin, but it is not a blanket abolition of TOMS and it does not automatically assess every operator. The safest working assumption is that Sonder-style long-lease serviced accommodation is exposed unless and until the appeal changes the law or advice confirms a material difference.

What knocked Sonder out of TOMS - the furnishing, or the length of the leases?

The factor that knocked Sonder out of TOMS was the lease structure, especially internal repairing and insuring leases for terms of two to ten years, not the bare fact that Sonder furnished the flats. The Upper Tribunal said it gave “particular weight” to Sonder entering into leases “for a term of years between two and ten years,” which made the accommodation supplied to guests Sonder’s own in-house supply rather than bought-in accommodation resold under TOMS. Furnishing still mattered at the edges: the tribunal said the answer was “even clearer” for apartments Sonder had taken unfurnished and then furnished itself. But the current law is not the earlier First-tier Tribunal view that furnishing and redecoration were not material and TOMS applied; that reasoning was overturned. For a rent-to-serviced-accommodation operator, the sharper risk is a long, controlled leasehold package that looks like creating your own accommodation product.

How far back can HMRC go for backdated VAT?

HMRC’s normal VAT assessment window is four years after the end of the VAT accounting period, but it can extend to 20 years where the loss of VAT was brought about deliberately. The statute says an assessment must not be made “more than 4 years after the end of the prescribed accounting period,” but the 20-year rule applies to “a case involving a loss of VAT brought about deliberately.” That statutory word is “deliberately,” not just “fraud”: it can be broader than the shorthand used in some tax commentary and can cover knowing participation or failure to notify in the right facts. Good faith reliance on a property training course may matter to penalties and whether conduct was careless or deliberate, but it does not turn an underdeclared VAT return into a correct one. If Sonder ultimately stands, advisers expect HMRC to focus first on four years of full-turnover VAT recalculations for similar operators.

What is a transfer of a going concern?

A transfer of a going concern, or TOGC, is a transfer of business assets that is treated for VAT as neither a supply of goods nor a supply of services, so no VAT is charged if the conditions are met. HMRC’s plain-English summary is that “if you sell assets as part of a business which is a going concern then, subject to certain conditions, no supply takes place for VAT purposes and no VAT is chargeable.” It is not zero-rating, exemption or an election the parties can choose after the event: if the statutory conditions apply, the treatment follows. The core condition is that the buyer must take over a business, not merely a bundle of assets, and must intend to use those assets in carrying on the same kind of business. “Transfer of ongoing concern” is usually just a mistaken wording; the VAT term is transfer of a going concern.

Can you sell a rent-to-rent business as a transfer of a going concern?

A rent-to-rent serviced accommodation business can potentially be sold as a TOGC if what is transferred is the operating trade and assets, such as assignable head-leases with the benefit of sub-leases or bookings, but TOGC does not apply to a simple sale of the company’s shares. HMRC’s own property examples include assigning “the lease of a property (which is subject to a sub-lease) … with the benefit of the sub-lease,” and surrendering a lease to a landlord with subleases attached, because the recipient becomes the landlord of the sub-tenants. That is the ordinary lease/sub-lease route; no VAT law defines “rent to rent” as a special TOGC category. If the exit is really a trade-and-asset sale, the buyer must take over a functioning business and carry on the same kind of activity. If the exit is a share sale of the operator company, the TOGC rules do not apply at all.

Last reviewed August 2026.

Sources

• HMRC VAT Notice 709/5, Tour Operators Margin Scheme — “It's a special scheme for businesses that buy in and resell travel, accommodation and certain other services as a principal or undisclosed agent (that is, acting in your own name).” Source
• Sonder Europe Ltd v HMRC [2025] UKUT 14 (TCC) — “In short, the services supplied by Sonder to the traveller were its own in-house supplies, which therefore fall outside the ambit of TOMS.” Source
• VATupdate report on Sonder appeal stay — “The Court of Appeal has granted a stay, postponing the hearing rather than cancelling it.” Source
• Sonder Europe Ltd v HMRC [2025] UKUT 14 (TCC) — “We have taken into account all those terms, and give particular weight to the fact that Sonder entered into internal repairing and insuring leases for a term of years between two and ten years.” Source
• Sonder Europe Ltd v HMRC [2025] UKUT 14 (TCC) — “The position is even clearer in relation to the unfurnished apartments.” Source
• Ross Martin report on the First-tier Tribunal decision in Sonder — “Sonder appealed to the First Tier Tribunal (FTT), which Found that the supplies were covered by the TOMS on the basis that redecoration and furnishing were not material alterations to the apartments.” Source
• Value Added Tax Act 1994 s.77 — “(a) more than 4 years after the end of the prescribed accounting period or importation concerned, or” Source
• Value Added Tax Act 1994 s.77 — “(a)a case involving a loss of VAT brought about deliberately by P (or by another person acting on P's behalf),” Source
• Scale Rentals commentary on Sonder — “If this ruling is upheld, HMRC could require operators to recalculate up to four years of VAT, potentially creating substantial financial liabilities, business failures, and job losses across the short-term rental sector and its wider supply chain.” Source
• VAT (Special Provisions) Order 1995 art.5 — “Subject to paragraph (2) below, there shall be treated as neither a supply of goods nor a supply of services the following supplies by a person of assets of his business—” Source
• VAT (Special Provisions) Order 1995 art.5 — “(a)their supply to a person to whom he transfers his business as a going concern where—” Source
• HMRC VAT Notice 700/9, Transfer a business as a going concern — “But if you sell assets as part of a business which is a going concern then, subject to certain conditions, no supply takes place for VAT purposes and no VAT is chargeable.” Source
• HMRC VAT Notice 700/9, Transfer a business as a going concern — “the buyer must intend to use the assets in carrying on the same kind of business as the seller — this does not need to be identical to that of the seller, but the buyer must be in possession of a business rather than simply a set of assets” Source
• HMRC VAT Notice 700/9, property rental business example — “the lease of a property (which is subject to a sub-lease) and you assign your lease with the benefit of the sub-lease” Source
• HMRC VAT Notice 700/9, lease surrender example — “are a tenant of a building, you have sub-let part of that building, and you surrender your lease to the landlord with the benefit of the subleases, then you are transferring your property rental business because the landlord will become the landlord of the sub-tenants” Source
• Saffery, VAT and transfer of a going concern — “A TOGC will only occur though in trade and asset sales.” Source