ETASSUM52160 - Enterprise Management Incentives (EMI): Excluded activities: Hotels and comparable establishments

Paragraph 21, Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

Activities consisting of the operation or management of hotels are excluded. This goes wider than ownership of a hotel, but applies only where the company occupies the premises or has some legal interest in them.

A hotel is defined in the Hotel Proprietors Act, 1956 as ‘an establishment held out by the proprietor as offering food, drink and, if so required, sleeping accommodation, without special contract, to any traveller presenting himself who appears able and willing to pay a reasonable sum for the services and facilities provided and who is in a fit state to be received’.

The exclusion also applies to any establishment, such as a guest house or hostel, where the main purpose is the provision of overnight accommodation, with or without catering services. It does not cover institutions such as prisons and boarding schools, where, although overnight accommodation is provided, the main purpose is quite different.

The legislation does not specify how to determine the main purpose of an ‘establishment’. In particular, it does not suggest that an establishment’s main purpose should be determined by reference to whether any of several different services offered form a ‘substantial’ part of the establishment’s services.

The main purpose of an establishment which is not a hotel should be determined by reference to the particular facts of the case. That may include, for instance, considering how it describes its services in marketing material and how it is treated by the local authority for rating purposes as well as by reference to its accounting records. If the facts suggest that the establishment’s main purpose is that of offering overnight accommodation, then that establishment has to be looked at in the context of the company’s trade as a whole to determine whether that trade consists wholly or as to a substantial part in operating or managing hotels or comparable establishments.

If the facts indicate that an establishment should be regarded as a hotel, then it is not necessary to determine what the establishment’s main purpose may be. The hotel activity should be considered in the context of the company’s trade as a whole to determine whether that trade consists to a substantial extent in operating or managing hotels or comparable establishments.