The Economic Crime and Corporate Transparency Act 2023 introduces significant reforms to UK company law, notably the implementation of identity verification requirements for individuals involved with UK companies. These measures aim to enhance transparency, deter fraudulent activities, and bolster trust in the corporate sector.
Transition Period and Compulsory Nature
Starting 8 April 2025, individuals can voluntarily verify their identity with Companies House. By autumn 2025, this verification becomes mandatory for new directors and Persons with Significant Control (PSCs) upon incorporation or appointment. Existing directors and PSCs will have a 12-month transition period, commencing in autumn 2025, to comply with these requirements, making verification compulsory for them by autumn 2026.
Identification Requirements
To verify identity directly with Companies House via GOV.UK One Login, individuals will need one of the following forms of photo identification:
Biometric passport from any country
UK photo driving licence (full or provisional)
UK biometric residence permit (BRP)
UK biometric residence card (BRC)
UK Frontier Worker permit (FWP)
Alternatively, verification can be conducted through an Authorised Corporate Service Provider (ACSP).
Role of Authorised Corporate Service Providers (ACSPs)
ACSPs are entities such as accountants, solicitors, and company formation agents that are supervised under anti-money laundering regulations. From 18 March 2025, these firms can apply to become ACSPs. Once registered, ACSPs can verify the identities of their clients and file information on their behalf. The verification process conducted by ACSPs must meet the same standards as those conducted directly with Companies House.
Applicability to Company Filings
The identity verification requirements apply to individuals who set up, run, own, or control a company in the UK, including directors and PSCs. While the verification is primarily associated with roles and appointments, it extends to those filing documents on behalf of a company. Therefore, individuals responsible for submitting filings, such as company secretaries, will also need to verify their identity. However, once an individual has been verified, they are not required to verify their identity each time they file a document.
Individuals Required to Verify Identity
The following individuals are required to verify their identity:
Directors (including equivalents such as LLP members)
Persons with Significant Control (PSCs)
Individuals filing documents on behalf of a company (e.g., company secretaries)
Shareholders who are not PSCs are not required to undergo identity verification under the current regulations.
These reforms represent a significant shift in UK company law, aiming to enhance the integrity of the corporate register and combat economic crime. Companies and individuals involved should prepare to comply with these new requirements within the specified timelines.
We will be applying to become an ACSP as soon as we are licenced by CIMA for this activity, the licences will be available later this year.
The Upper Tribunal’s decision has significant implications for businesses that lease residential properties and rent them out as serviced apartments. It suggests that such activities may not fall within the scope of TOMS, potentially requiring these businesses to account for VAT at the standard rate on the full value of their supplies, rather than just on their profit margin. This shift could impact the VAT treatment of supplies made by similar operators in the serviced accommodation sector.
As of March 22, 2025, Sonder Europe Ltd has applied for permission to appeal the Upper Tribunal’s decision regarding the applicability of the Tour Operators’ Margin Scheme (TOMS) to its serviced apartment operations. The Upper Tribunal had previously overturned the First-tier Tribunal’s ruling, siding with HMRC in determining that Sonder’s activities did not qualify for TOMS. We are currently awaiting the court’s determination on whether the appeal will be allowed.
First-tier Tribunal (FTT): The decision was released on 5 July 2023. GOV.UK
Upper Tribunal (UT): The decision was released on 14 January 2025. GOV.UK
Discretionary Relief from Retrospective VAT Registration
If you didn’t register for VAT because you believed TOMS applied and the margin was below the VAT threshold, you would be required to do a back dated registration, however you could ask HMRC for Discretionary Relief.
Retrospective registration may not always be imposed if exceptional circumstances exist. HMRC may exercise discretion to waive backdating if it would be unreasonable to do so, or if the trader demonstrates a genuine misunderstanding or error at the time of registration
To make a compelling case to HMRC for discretionary relief from retrospective VAT registration, based on a genuine misunderstanding tied to the Sonder Europe case, you would need to write a detailed explanation highlighting the following points:
1. Establish the Context of the Misunderstanding
Explain that the decision to not register for VAT was based on reliance on the First Tier Tribunal (FTT) decision in favour of Sonder Europe. Emphasise that this decision created a reasonable belief that the application of TOMS to similar business operations was lawful and acceptable.
Reference the FTT’s decision, explaining how it shaped the industry practice and created precedent for similar businesses to believe TOMS was the correct VAT treatment for their supplies.Example: “The company relied on the First Tier Tribunal decision in the case of Sonder Europe, which ruled that TOMS applied to specific supplies. This ruling was widely understood in the industry as legitimate guidance for similar businesses. Consequently, the company believed that its operations fell within the scope of TOMS, and its taxable margin did not exceed the VAT threshold under this scheme.”
2. Demonstrate Good Faith
Establish that the business acted in good faith and sought to comply with VAT rules based on the prevailing interpretation at the time.
If applicable, include any evidence of professional advice or guidance sought (e.g., from accountants or tax advisors) that corroborated the decision to apply TOMS.Example: “The company sought professional advice from its tax advisor, who confirmed that the interpretation of TOMS, as outlined in the Sonder Europe FTT decision, was appropriate for the company’s operations. At no point did the company knowingly seek to avoid VAT registration or misapply the rules.”
3. Highlight the Impact of the Upper Tribunal Decision
Explain that the Upper Tribunal’s (UT) decision against the application of TOMS has now significantly changed the legal interpretation of VAT treatment for similar businesses. Emphasise that this decision was unforeseen and altered the business’s understanding of its VAT obligations.Example: “The Upper Tribunal’s decision to overturn the FTT ruling in the Sonder Europe case has fundamentally changed the interpretation of VAT law regarding TOMS. This decision was unexpected and directly affected the company’s prior understanding of its VAT obligations.”
4. Request for Discretionary Relief
Argue that it would be unreasonable to impose retrospective VAT registration under these circumstances, as the misunderstanding was genuine and based on a credible legal precedent at the time.
Highlight that forcing retrospective registration would impose undue financial and operational burdens on the business, particularly as the business acted reasonably and in good faith.Example: “In light of the genuine misunderstanding arising from reliance on the FTT decision and the subsequent unforeseen overturning of that decision by the Upper Tribunal, we respectfully request that HMRC exercise its discretionary care and management powers to waive retrospective VAT registration. We believe it would be unreasonable to impose retrospective liabilities in this instance, given the company’s good faith reliance on prevailing legal precedent.”
5. Propose Future Compliance
Reassure HMRC that the business is now fully committed to complying with the revised VAT treatment as clarified by the UT decision. Include a commitment to register for VAT moving forward (if required).Example: “The company is committed to ensuring full compliance with VAT obligations and will immediately register for VAT in accordance with the revised interpretation of the law. We are prepared to work with HMRC to ensure all future VAT returns are accurate and up to date.”
Should VAT Registered Business restate previous returns using Standard VAT?
The key issues include whether VAT must be restated retrospectively on the standard VAT scheme from the date of TOMS adoption or whether adjustments may be limited to future VAT returns. Additionally, if Sonder’s appeal proceeds should you keep using TOMS until thats ruled on?
Restating VAT Retrospectively The UT ruling against the application of TOMS does not inherently require VAT to be restated retrospectively unless the UT decision explicitly mandates such action. Since HMRC policy typically supports prospective application of changes, operators may not need to restate VAT using the standard VAT scheme for prior periods unless exceptional circumstances apply
Rules explicitly stating that the Upper Tribunal mandates retrospective action in VAT compliance are not absolute but situational. Retrospective compliance is only required:
When the Upper Tribunal explicitly mandates such action in its decision.
When the decision constitutes a reinterpretation of the law, which inherently requires retrospective application, as per HMRC Brief 24/11.
The relevant excerpt from HMRC Brief 24/11 is as follows:
“HMRC usually announces changes in its policy or its interpretation of the law in advance. Whilst changes in policy are given a future implementation date, a change in interpretation of the law will mean that the law should always have been applied in a certain way, so the change is retrospective. On this basis, HMRC has stated that it: will not require a correction of past errors, based on the old interpretation of the law, so the new interpretation can be applied from a current or future date; will accept a correction of past errors if the business will not be better off and HMRC no worse off than if the correction was not made; and may exercise its discretion not to collect outstanding VAT where the business has been misdirected by an HMRC officer (who gave a clear ruling when in possession of all the facts).” (11)
Adjustments for Future VAT Returns HMRC is likely to require compliance with the UT’s ruling from the date of the decision. Future VAT returns should reflect the standard VAT scheme unless the UT ruling is overturned upon appeal
Effect of Sonder’s Appeal Request Sonder’s request to appeal the UT decision may temporarily delay the implementation of the ruling until the appeal is resolved. However, unless a stay of execution is granted, the UT ruling remains binding during the appeal process. Businesses relying on the FTT decision should comply with the UT’s ruling unless the appeal is successful. The tribunal system allows for appeals to the Court of Appeal on points of law only.
Conclusion
When the decision first came out many advisors were of the opinion that retrospective corrections were needed, in the same way that many businesses which adopted TOMS retrospectively made reclaims as TOMS saved them significant amounts of VAT. This may still be required, as HMRC may now reject the switch to TOMS, however, as it hasn’t been mandated this would give the option to change to standard going forward, pending further developments.
on or after 6 April 2025 for Income Tax and for Capital Gains Tax
from 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains
Current law
The current law on the tax rules for furnished holiday lettings is contained in:
Part 3 of the Income Tax (Trading and Other Income) Act 2005
Part 4 of the Corporation Tax Act 2009
Part 7 (specifically sections 241 and 241A) of the Taxation of Capital Gains Act 1992
the Capital Allowances Act 2001
Proposed revisions
This change will remove the tax advantages that current furnished holiday let landlords have received over other property businesses in 4 key areas by:
applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax
removing capital allowances rules for new expenditure and allowing replacement of domestic items relief
withdrawing access to reliefs from taxes on chargeable gains for trading business assets
no longer including this income within relevant UK earnings when calculating maximum pension relief
After repeal, former furnished holiday let properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.
The following specific transitional rules will apply:
businesses with FHL properties will no longer be eligible for more beneficial capital allowances treatment but will instead be eligible for ‘replacement of domestic items relief’ in line with other property businesses — where an existing FHL business has an ongoing capital allowances pool of expenditure, they can continue to claim writing-down allowances on that pool — any new expenditure incurred on or after the operative date must be considered under the property business rules
under current rules a loss generated from a FHL property business can only be carried forward and utilised against future profits of that same FHL business — after the changes, former FHL properties will be part of the person’s UK or overseas property business as appropriate — that property business will then include the amalgamated profits and losses of all the properties in that business
persons may have losses to carry forward from their FHL business after repeal — losses generated from this FHL business will be permitted to be carried forward and be available for set off against future years’ profits of either the UK or overseas property business as appropriate
under current rules FHL properties are eligible for roll-over relief, business asset disposal relief, gift relief, relief for loans to traders, and exemptions for disposals by companies with substantial shareholdings — after the changes eligibility for the reliefs will cease — however, where criteria for relief includes conditions that apply in a future year these specific rules will not be disturbed where the FHL conditions are satisfied before repeal
in relation to business asset disposal relief, where the FHL conditions are satisfied in relation to a business that ceased prior to the commencement date, relief may continue to apply to a disposal that occurs within the normal 3-year period following cessation
there is also an anti-forestalling rule — this will prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules — this rule applies from 6 March 2024
Capital Allowances – Claim them now!
Now that we know you can continue to use the capital allowances pool after 5th April 2025 its worth claiming capital allowances now if you are eligible.
We had previously assumed there would a clawback on the 5th April 2025 by creating a balancing charge because the Holiday Let activity would cease, but now we know that won’t be the case, which is great news and a big relief for FHL owners.
The Construction Industry Scheme (CIS) applies to anyone who carries out construction work as a trade, in other words developers, contractors, building maintenance and repairs, decorating, property conversion, basically if you use sub-contractors to work on a building its probably within CIS. It does, however, exclude property investors and domestic householders.
Under CIS the Contractor/Developer has to use the subcontractors UTR, NI and other details to verify the subcontractor with HMRC, this determines in a deduction that need to be taken and paid to HMRC.
The Construction Industry Scheme (CIS) deduction rates are:
20% for registered subcontractors
30% for unregistered subcontractors
0% if the subcontractor has ‘gross payment’ status – for example they do not have deductions made
The Contractor/Developer must pay these deductions to HMRC – they count as advance payments towards the subcontractor’s tax and National Insurance bill.
The contractors then does a monthly return for HMRC, makes payment of the tax collected and issues a deduction statement to the subcontractor.
Flipping and Developing
Flipping is where a property is purchased and work carried out to resell for a profit, this is a development activity and within CIS.
Property developers are included within the meaning of mainstream contractors because their business activity is the creation of new buildings, or the renovation or conversion of existing buildings, or other civil engineering works. The same is true of a speculative builder.
Contractors may be construction companies and building firms, but may also be government departments, local authorities and many other businesses that are normally known in the industry as ‘clients’.
Some businesses or other concerns are counted as contractors if they have spent more than £3 million on construction within the previous 12 month period. The rules require a business to monitor construction spend regularly.
Private householders are not counted as contractors so are not covered by the scheme.
This no lower limit for CIS, if you are a developer/contractor you have to do CIS.
When do Investors need to do CIS?
As noted above there is the £3m rule but also where the work is substantial it could be within CIS. See example below..
The property investment business acquires a large, dilapidated building to add to its portfolio, and decides to convert the building into a series of flats which it will then individually let out. As a result, substantial development is required to the property to change the building to its new use. In respect of this type of development we would regard the property investment business as having taken on the mantle of a mainstream contractor as its business activity is now that of construction operations.
Where, at a future date, the investment business reverts to property investment activities only, then their status as a deemed contractor should be applicable once again. If their expenditure is likely to remain below £3 million on a rolling 12-month period, then deregistration from CIS may be considered appropriate.
Clearly subcontractors aren’t enthusiastic about CIS as impacts their cashflow, they get the money back as its offset against their tax liability, but even so, its not ideal.
However, its relatively easy to get Gross Status, to qualify..
You must show HM Revenue and Customs (HMRC) that your business passes some tests. You’ll need to show that:
you’ve paid your tax and National Insurance on time in the past
your business does construction work (or provides labour for it) in the UK
your business is run through a bank account
HMRC will look at your turnover for the last 12 months. Ignoring VAT and the cost of materials, your turnover must be at least:
£30,000 if you’re a sole trader
£30,000 for each partner in a partnership, or at least £100,000 for the whole partnership
£30,000 for each director of a company, or at least £100,000 for the whole company
If your company’s controlled by 5 people or fewer, you must have an annual turnover of £30,000 for each of them.
It was announced in the March 2024 budget that the special treatment of Holiday Lets (FHL) would be abolished from the 6th April 2025. That’s in 10 months time!!
In 2017 there were around 8,000 FHLs by 2022 there were 111,000 in the UK, the growth has been incredible, which is why the Government have changed the rules to cash in and also to release properties for the long term let market.
Key Problems
Capital Allowances
One of the major benefits of holiday lets/serviced accommodation has been and is Capital Allowances. These have been claimed by both individuals and companies.
Many FHL owners have claimed between 20% and 40% of the property value saving considerable tax, its been the top advantage of holiday lets for most owners and its key reason behind personal ownership which allowed the profits offset by Capital Allowances to be extracted tax free.
Now the regime is ending (5th April 2025) the market value of the assets (Integral Features and Plant & Equipment) may need to be assessed and a balancing charge may be payable. This could effectively refund HMRC with the tax that had been reclaimed.
Interest Restriction
This won’t apply to companies.
Companies will have a clear tax advantage for FHL ownership in the future.
Individual FHL owners will be taxed in the same way as BTL owners, this means Interest will no longer be an allowable cost and instead they will get the finance allowance. This is fine if you are 20% tax payer but will mean additional tax for 40% tax payers.
If you sell or transfer your FHL now you can still benefit from generous Capital Gains Tax Allowances (SDLT LBTT LTT may be payable)
Business Asset Disposal Relief (BADR)
This was previously known as Entrepreneurs Relief, basically, subject to rules, if you dispose of your FHL business, the gain is taxed at 10%.
Its anticipated that the date of disposal will be critical. In other words, an individual who ceased their FHL business will only qualify for BADR if they dispose of their FHL by the earlier of three years from the date of cessation or 5th April 2025.
We don’t expect the end of the regime on the 5th April 2025 to count as cessation for BADR, meaning you can then dispose of the property then claim BADR in the following three years.
So there is clear incentive to sell now before the change takes place.
This allows the FHL owner to rollover over their gain into a new business property.
It is clear that this relief will not be available after 5th April 2025, however, if a sale took place before the deadline could the gain be rolled over into a new qualifying business property for example a shop?
Let’s hope so, otherwise there will be no option but to pay the CGT rolled over.
Where the intention is to keep an FHL property within the family, there are a number of tax planning opportunities. FHL properties that meet the qualifying criteria are able to benefit from s. 165 business asset holdover relief, and they may also qualify for business property relief, so enabling a gift into trust without a lifetime inheritance tax charge. In the latter case, holdover relief under TCGA 1992, s. 260 would apply as it takes priority over s. 165.
Holdover relief for FHL’s will end on 5th April 2025
Its likely that an FHL business will qualify for incorporation tax relief, this should continue after the 5th April 2025. The important factor is the level of activity as outlined in the Ramsey Case.
The Government announced at Spring Budget 2024 that the Furnished holiday lettings tax regime (FHL) will be abolished from April 2025. The Finance (No. 2) Bill 2024 will include an anti-forestalling rule to prevent access to capital gains tax reliefs through the use of unconditional contracts, to apply from 6 March 2024. This is yet to be enacted and may be subject to change.
The date of disposal is the date of an unconditional contract which in England and Wales is normally the date of exchange.
So CGT reliefs would be based on that date not the completion date.
What this means is that any contract has to complete by the 5th April 2025
The abolition of FHL Tax Breaks is supported by both Labour and Conservatives, in fact Labour wanted to make the change back in 2010, so its unlikely who ever wins the election will stop the changes taking place.
Contact Us
Now is time to consider your option, we can help, please get in touch, book a meeting or drop me an e mail steve@bicknells.net
Cost Value Reconciliations (CVR’s) are used across the construction sector and are the industry norm.
In managing construction projects, Cost Value Reconciliations (CVRs) play a crucial role in establishing profitability, monitoring performance, and identifying potential issues. To prepare a comprehensive CVR, it’s essential to recognise value accurately and consistently throughout the project lifecycle, and include a scenario management section (Best/Worst/Most likely). Accurate value recognition and consistent reporting can influence the amount of profit and loss reported. Calculating construction costs involves input and output methods, and it’s important to consider under measure and over measure, as well as advanced payments and retention. Regular cost meetings can help monitor project progress and address potential issues early on.
Accounting Rules
Both FRS105 and FRS102 have sections covering Construction, below are the rules from FRS102
23.17 When the outcome of a construction contract can be estimated reliably, an entity shall recognise contract revenue and contract costs associated with the construction contract as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period (often referred to as the percentage of completion method). Reliable estimation of the outcome requires reliable estimates of the stage of completion, future costs and collectability of billings.
23.22 An entity shall determine the stage of completion of a transaction or contract using the method that measures most reliably the work performed. Possible methods include: (a) the proportion that costs incurred for work performed to date bear to the estimated total costs. Costs incurred for work performed to date do not include costs relating to future activity, such as for materials or prepayments; (b) surveys of work performed; and (c) completion of a physical proportion of the contract work or the completion of a proportion of the service contract. Progress payments and advances received from customers often do not reflect the work performed.
Carillion used a variety of techniques to hide its ailing health and its “aggressive accounting” was only exposed when it revealed an £845m financial black hole in July 2017, MPs have concluded.
The UK’s second biggest construction firm before its January 2018 collapse consistently overestimated the profitability of its projects, counted as revenue uncertain cash that clients had not signed off, and hid its mounting debt to suppliers so as to appear more financially sound than it really was.
Carillion had a turnover of £5.2bn, Balfour Beaty held the top spot at £8.2bn
Mark Smith Groundworks
Its not just big companies, small Subcontractors need to do CVR’s too
Mark Smith was trading as a builder who provided ground works for construction companies. He had an in house surveyor who produced his applications for payment, the clients surveyor certified the valuation within 3 weeks and the accountant recognised the value when certified. The contracts were fixed price and lasted up to 12 months, The business started as a Sole Trader and was subsequently incorporated.
HMRC opened an enquiry in 2001/2002.
The central issue before the tribunal related to Mark Smiths computation of profits.
(1)2000/01: additional profits of £43,189 giving rise to tax of £17,275.60
(2)2001/02: additional profits of £65,205 giving rise to tax of £24,972.02
(3)2002/03: additional profits of £73,889 giving rise to tax of £27,737.86
(4)2003/04:additional profits of £70,023 giving rise to tax of £27,503.41
(5)2004/05: additional profits of £70,000 giving rise to tax of 27,704.18
(6)2005/06: additional profits of £65,240 giving rise to tax of £26,735.44
(7)2006/07: additional profits of £45,541 giving rise to tax of £18,671.81
There was also a penalty determination in respect of 2004/05 in an amount of £8,311
What are the elements of a CVR?
Cost = Expenses incurred in a construction project
Value = Value of work undertaken (Revenue that can be recognised)
Prepared on the basis of when Value is earned and cost incurred, not based on cash received/paid
Prudence Concept
Value – not overstated
Costs – not understated
The Final Position
Needs to be based on the same scope of work, same program and duration
Consider
Measure (for example brick laying)
Variations
Claims such as delays
Ignore
Retentions unless the client is likely to retain it
Bonuses until achieved and agreed
Gain Share on Cost Reimbursable contracts
Liquidated Damages unless the client is likely to apply them
“A subcontractor liability is the cumulative assessment of the subcontract cost that is due to them under the terms of their subcontract up to the month end cut off date”
Some Construction Companies don’t recognise any profit under more than 20% of the contract has been completed because they take the view that the outcome of the project isn’t certain
In addition any future losses are recognised immediately rather than carrying them forward and distorting profitability.
Preliminaries – The easiest way to define preliminaries in construction is as a group of items necessary for a construction company or contractor to complete a project but that won’t become a part of the finished work—site overhead, scaffolding, powering the site, etc.
Enabling Works – these costs cover activities from site preparation, creation of access routes, and the installation of facilities like security fencing, ramps, and placing of signs.
Provisional Sums – A provisional sum is an allowance included in a construction contract to cover the estimated cost of certain work. The work covered by a provisional sum is usually specified in the contract documents. Provisional sums are usually used for work that is difficult to estimate, such as earthworks or specialist services.
How do you prepare a CVR?
Accounting Records
Its likely you will start with your accounting records, you will probably have a Job Costing System that will show you
Applications for Payments/Authenticated Receipts/Self Billing/Certified Work
Subcontract payments and invoices
Wages
Materials
Overheads
Budgets/Estimates
Adjustments
The accounts will cut of at the end of a month but will need adjusting
Cost Accruals
Internal v’s External Valuations
Basically you need to consider all the points in the previous section – What are the elements of a CVR
The end result needs to meet the requirements of the accounting standards…
Reliable estimation of the outcome requires reliable estimates of the stage of completion, future costs and collectability of billings.
Mrs H contacted us in April 2023, HMRC had contracted her about undeclared property income dating back to 2010-11. Mrs H had already been in discussion with HMRC and supplied information and HMRC had made an assessment in March 2023, the assessment added up to £54,798. HMRC request agreement and payment by 11th April 2023.
The clients daughter was already a client and felt the assessment seemed to too high and suggested Mrs H seek advice from a property tax expert and recommended us.
Mrs H had spoken to other accountants and felt little could be done.
We reconstructed the records for the period 2021-22 to 2010-11. This was highly detailed work looking at
Bank Statements
Letting records
Expenses
Credit Card Statements
Other records
This was basically a forensic exercise, we shared the information with HMRC and questions went backwards and forwards over many months.
HMRC Agreed Figures March 2024
Its take a year, but on the 11th March 2024 HMRC issued a new assessment requesting payment of £22,713 which Mrs H has accepted. Saving £32,085 on the original assessment.
This is a great example of how compiling accurate and detailed records can save you considerable amounts of tax.
It also demonstrates the need to work with an accountant who is an expert in Property Tax.
Feefo Client Review
I’m so grateful and honoured to have been recommended the outstanding service of Bicknell. Long may it continue.
Star Rating: ★★★★★
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If you need help book a virtual meeting and we can have chat
The March 2024 Budget was bad news for Furnished Holiday Lets (FHL)/Serviced Accommodation.
Abolition of the Furnished Holiday Lettings (FHL) tax regime
As announced at Spring Budget 2024, the government will abolish the Furnished Holiday Lettings tax regime, eliminating the tax advantage for landlords who let out short-term furnished holiday properties over those who let out residential properties to longer-term tenants. This will take effect from April 2025.
Draft legislation will be published in due course and include an anti-forestalling rule. This will prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules. This rule will apply from 6 March 2024.
• Interest incurred on borrowings is fully deductible against taxable profits • Beneficial capital allowances rules allowing tax relief for fixtures • Various capital gains tax reliefs, including potential for business asset disposal relief (10% rate on sale), rollover relief and gifts hold-over relief • Profits from FHLs can be treated as relevant earnings for pension purposes • Income from a FHL held jointly by a married couple or civil partners is not caught by the default 50:50 split for income tax purposes
The anti-forestalling Rule
We are still awaiting the detail, but its likely that FHL’s owned by companies will not be affected by the changes. That means that company ownership would be the best option.
The anti-forestalling rule seems to prevent conditional contracts but it may still be possible to simply sell your FHL to your own company at an arms length market value, this would incur stamp duty but if the rules don’t come in to force until 2025 you might get Incorporation Tax Relief or Business Asset Disposal Relief which would save Capital Gains Tax.
As the rules are likely to be out soon its best to wait before taking action.
Time to Plan
Now is the time to consider
The impact of the changes on your tax
Whether to sell
Whether to sell to your own Company
Whether to change the use to Assured Short Term Tenancies
Working out your plan now could save you considerable tax in 2025.
The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. Draft legislation is to be published and will include anti-forestalling measures that will apply from 6 March 2024. The effect of abolishing the rules will be that short-term furnished holiday lets and longer-term residential lets are treated the same for tax purposes and individuals will no longer need to report the two income streams separately.
The advantages likely to be affected are:
• Interest incurred on borrowings is fully deductible against taxable profits • Beneficial capital allowances rules allowing tax relief for fixtures • Various capital gains tax reliefs, including potential for business asset disposal relief (10% rate on sale), rollover relief and gifts hold-over relief • Profits from FHLs can be treated as relevant earnings for pension purposes • Income from a FHL held jointly by a married couple or civil partners is not caught by the default 50:50 split for income tax purposes
Brightline Test
The OTS report outlines a suggested ‘brightline’ test to provide a clear test for when property letting activities subject to income tax would qualify as a trade. It proposes possible factors to be considered within the test are:
minimum number of properties let
letting is on a short term basis
no personal use of the let
level of personal time devoted to the property letting and services provided
Good news on CGT
Residential higher rates will be reduced on chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief. These rates are changed from 18% and 28% in 2023/24 to 18% and 24% in 2024/25
But its still bad news for Holiday lets as they will lose Business Asset Disposal Relief meaning CGT at 10%
Changes to SDLT
A number of changes are made to the Stamp Duty Land Tax (SDLT) regime. These include the following:
• The abolition of Multiple Dwellings Relief
• Changes to First-Time Buyer Relief to extend it to individuals buying a new residential lease via a nominee or bare trust for transactions
Fujitsu Services workers in the West Midlands are set to strike later this month in a dispute over pay, which a trade union has said is likely could cause disruption for people filing self-assessment tax returns.
About 300 members of the PCS union based in Stratford-upon-Avon and Telford are set to take part in the walk-out on 17 January.
Those joining the strike are mainly those working on behalf of HM Revenue and Customs.
All of the participating employees are members of the Public and Commercial Services (PCS) Union, and are set to strike after rejecting a 3-4% pay rise from Fujitsu after learning that employees working for the company in Japan are being offered salary increases of up to 29%.
If you don’t file your self assessment return by 31st January you will get penalties.
You’ll pay a late filing penalty of £100 if your tax return is up to 3 months late. There are extra penalties after that and interest is charged on amounts due to HMRC.
But late filing also increases your chance of being investigated by HMRC, the logic is that leaving things till the last minute suggests you are disorganised and more likely to make mistakes.
Don’t miss the deadline, make sure your return is filed before the 17th January 2023.
