Upper Tribunal holds that Sonder's short term accommodation failed the TOMS tests

Sonder Europe Limited (Sonder) leased self-contained apartments from landlords for 2 to 10 years, furnishing and decorating them if needed (without altering the fabric or structure of the apartment), and then sub-let them to travellers for short-stays.

HMRC challenged the First-tier Tribunal (FTT) decision that Sonder was correct to apply the Tour Operators' Margin Scheme (TOMS) to account for VAT on their supplies to travellers. HMRC appealed and argued successfully before the Upper Tribunal (UT) that looking at the terms of Sonder's headlease and the onward supplies Sonder made to travellers , Sonder's supplies were not "without material alteration or further processing" and that the supplies to Sonder under the headlease were not "for the direct benefit" of its customers, both of which are key criteria which enable an operator to fall within TOMS as per Article 3(1)(b) of the Value Added Tax (Tour Operators) Order 1987.

Accordingly , the UT reversed the FTT decision agreeing with HMRC. It ruled that Sonder's supplies fell outside the scope of TOMS because the landlord's supplies to Sonder were not for the direct benefit of customers. Instead, the landlord's services were materially altered by and converted to short term holiday accommodation which constituted Sonder's own in-house supplies to traveller. Therefore, VAT should be accounted for VAT on the full value of Sonder's supplies made to travellers, and not the margin calculated under TOMS.

The UT based its decision on facts such as the terms of the lease agreed with the landlord compared to the terms agreed with travellers, and Sonder being responsible for damages and upkeep during the head lease.

Key takeaway

This is an important development for the sector. Companies within the travel and accommodation industry should reassess the VAT treatment of their supplies if they are applying TOMS.

Reference

The Commissioners for HMRC v Sonder Europe Limited - Find Case Law - The National Archives

The Commissioners for HMRC v Sonder Europe Limited [2025] UKUT 14 (TCC)