Several tax changes over the years have led to a number of landlords abandoning traditional long term letting of their properties. These have included changes to stamp taxes, income tax and capital gains tax that have all made traditional long term residential letting less attractive than they once were.As an alternative, some landlords have instead looked at the holiday let market to boost their profits.
Where a let property can qualify as a furnished holiday let (FHL), several tax advantages can arise but there are a number of hoops to jump through to ensure you meet the criteria to be classed as an FHL. The conditions are quite detailed and include several occupancy tests. You can read more about eligibility requirements here.
As a result of coronavirus, some FHL owners will not meet the various occupancy day count tests. However, help is at hand with the potential to make use of a period of grace election. If a property qualifies as a FHL in one year but fails the letting condition in the next year, an election can be made to treat the property as a FHL in the second year (and third year if necessary) provided there was a genuine intention to meet the letting condition. Where you may be short on days, we’d recommend speaking to an accountant to confirm your position.
There is no doubt that the continuing effort to deal with the COVID-19 pandemic means owners of FHLs will suffer from a fall in demand and should look to take advantage of the various Government initiatives to protect their income.
FHLs have a complicated tax status. Sometimes the business is treated as a trade and sometimes it is treated as an investment. Therefore, more consideration needs to be given to work out what relief FHL owners may be entitled to.
More details on the various business support schemes may be found on our Coronavirus Hub.
We’d like to focus here on the main schemes which may be of benefit to FHL owners:
- Income tax deferral
- VAT deferral
- Business rates
- Business grants
Income tax deferral
The second payment on account towards income tax for the 2019/20 tax year, which would have been due for payment by the end of July 2020, has been deferred until the end of January 2021. This is an automatic process and does not need to be applied for.
In addition, the Government has enhanced the HMRC’s ‘Time to Pay’ arrangement scheme to help those with upcoming tax bills plan how they can pay with an individual plan. To support this, it has also launched a dedicated helpline – 0800 024 1222 – with increased staff numbers, to help those who are concerned about being able to pay their tax due to coronavirus.
Deferral of VAT payments
Not all FHL businesses will be registered for VAT but the supply of holiday accommodation counts as a standard rated supply for VAT and, where your FHL has exceeded the VAT registration threshold, you will need to register.
If you do have a VAT-registered FHL business, the VAT becoming due between 20th March 2020 and 30th June 2020 will be automatically deferred to ensure the payment won’t be due until 31st March 2021, though you can still pay if you wish. The deadline for submitting the VAT returns remains unchanged, i.e. it is one month and seven days after the end of the VAT period.
If you are paying HMRC by direct debit and do not want to pay the VAT until 2021, you should cancel your direct debit or HMRC will take the payment if VAT is due. Remember to cancel your direct debit in plenty of time so HMRC does not attempt to automatically collect on receipt of your VAT return.
The criteria to decide if you need to pay business rates for your FHL depends on where in the UK your property is located and the length of time you rent the property out. In some cases, you will not need to pay business rates and will simply pay council tax instead. Unfortunately, there will be no additional relief for council tax payers as a result of COVID-19.
To support businesses in the UK, the governments of England, Scotland, Wales and Northern Ireland have announced a series of business rate and cash grant packages to help them through the coronavirus outbreak.
In many cases, FHL owners will now enjoy a business rate holiday in 2020/21. Many FHLs would have qualified for small business rates relief so this may not be of benefit for more modest FHL owners. However, the relief will be very welcome for larger holiday letting businesses.
Of more use and interest to FHL owners will be the potential to benefit from cash grants.
In England, grant funding of £25,000 has been announced for smaller businesses occupying retail, leisure and hospitality premises. These will be businesses with a rateable value between £15,000 and £51,000.
Grant funding of £10,000 has also been announced for all businesses, whatever their sector, who already receive small business or rural rate relief. Initial guidance from the Government confirmed that businesses would not need to apply for grant funding, and they will be contacted by their local authority. Now local authorities have been issued with guidance, some have introduced an application process to apply for the grants.
For further information on how England, Scotland, Wales and Northern Ireland will treat your FHL and help on making claims, please visit our page dedicated to these packages.
Need more help?
There could potentially be other means you could obtain support. You could apply for bank funding for short term cash needs and you may also qualify for other Government schemes, such as the Coronavirus Job Retention Scheme, where you have employees. Full details of all the available schemes can be found on our Coronavirus Hub.
We have had a number of enquiries from owners of FHLs asking if they would qualify for the Self-employment Income Support Scheme (SEISS). This initiative will give self-employed individuals a taxable grant worth 80% of average monthly profits, up to £2,500 a month for the next three months. It has now been clarified that FHL owners reporting the income on the Property Income pages of their tax returns will not be able to base an SEISS claim on that income. But those providing holiday accommodation together with significant other services, where there income is correctly reported on the self-employment pages of their tax return should be eligible to claim. If you have separate self-employed trading income, we’d advise you to speak with your accountant to check eligibility.”
There are several ways in which we may be able to help. It’s always important to get good advice and that’s particularly true at this present time. If you need help please talk to us on 0800 0523 555 or use our online enquiry form. We can offer initial consultations, advice and support over the phone if you have any concerns about face-to-face meetings.
Date published 8 Apr 2020 | Last updated 22 Sep 2020This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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