What are the VAT rules for Serviced Accommodation? 1

Business couple in formal wear traveling

Residential Rent is an Exempt Supply for VAT, however, Serviced Accommodation isn’t, its treated as Holiday Accommodation.

Holiday accommodation includes, but is not restricted to, any house, flat, chalet, villa, beach hut, tent, caravan, or houseboat.

If you supply holiday accommodation, or a site for such accommodation, you must account for VAT at the standard rate on any charges that you make regardless of the length of occupation or description of the charges.

https://www.gov.uk/government/publications/vat-notice-7093-hotels-and-holiday-accommodation/vat-notice-7093-hotels-and-holiday-accommodation#holiday-homes

The problem with VAT is that if you promote your serviced accommodation to the general public it will either make it 20% more expensive for them or reduce your profit!

So lets look at somethings that might help

VAT Registration

You can’t charge VAT unless you are registered for VAT and you don’t have to register until your turnover hits £83,000.

VAT taxable turnover is the total value of everything you sell that isn’t exempt from VAT.

You must register for VAT with HM Revenue and Customs (HMRC) if it goes over the current registration threshold in a rolling 12-month period. This isn’t a fixed period like the tax year or the calendar year – it could be any period, eg the start of June to the end of May.

VAT Flat Rate Scheme

There are going to be changes to the VAT Flat Rate Scheme in April 2017 the changes are aimed mainly at low cost traders, we don’t know the full details yet.

A Low or Limited Cost Trader would spend less than 2% on gross turnover, or less than £1000 on the purchase of goods.

Assuming that the changes don’t affect Hotels and Holiday Accommodation, Flat Rate could save you VAT.

To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.

With the Flat Rate Scheme:

The Flat Rate for Hotels and Accommodation is 10.5%

Example

You bill a client for £1,000, adding VAT at 20% to make £1,200 in total.

You’re selling serviced accommodation, so the VAT flat rate for your business is 10.5%.

Your flat rate payment will be 10.5% of £1,200, or £126.

Separate Businesses

Provided there are commercial reasons why you should have separate businesses or companies, then each business would have the £83,000 registration threshold

The rules are set out in HMRC manuals and in this blog

https://stevejbicknell.com/2013/10/26/are-your-businesses-really-separate-for-vat-purposes/

VAT on Deposits

Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.

Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation. This includes amounts debited from credit cards using details provided at the time of the booking. Where the cancellation charge takes the form of a retained deposit, you can reclaim any VAT already accounted for as an adjustment to your next return.

steve@bicknells.net

The tax advantages of Furnished Holiday Lets 1

Traditional Old English Cottage with Thatched Roof

There are special tax rules for rental income from properties that qualify as Furnished Holiday Lettings (FHLs).

If you let properties that qualify as FHLs:

  • you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders)
  • you are entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
  • the profits count as earnings for pension purposes

https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/cvgg

In addition:

  • The Interest Rate Relief Restrictions don’t apply – these rules only affect Buy to Let Investors
  • Losses can be set against total income and are not restricted to the rental business; PIM4200 onwards deals with normal rental business losses and PIM4130 deals with furnished holiday lettings losses.

The letting condition

You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year (70 days for the tax year 2011 to 2012 and earlier).

The availability condition

Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year (140 days for the tax year 2011 to 2012 and earlier).

But the extra stamp duty will apply

Furnished holiday lets

The government proposes that properties bought as furnished holiday lets should be treated in the same way as all other residential properties – if the property is purchased as an additional property the higher rates will apply.

A Company could help you save tax

The current rate of Corporation Tax is 20% but its falling year on year and by 2020 it will be 18%.

Not only that, its the same rate no matter how many companies you have, previously when there were multiple Corporation Rate if you had associated companies the small companies rate was reduce in a marginal rate calculation.

Stamp Duty (SDLT) on selling Shares is 0.5%.

ExampleSo £1,995 × 0.5% = £9.97. This is rounded up to the nearest £5, which means you pay £10 Stamp Duty.

https://stevejbicknell.com/budget-2016/budget-3/

HMRC have a calculator, here is link

http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

One of the big benefits of Shares is that its easy to split ownership.

Potentially Exempt Transfers (PET’s) allow you to give away shares provided you survive more that 7 years after the transfer, shares make PETs easy and simple.

When you give away shares it will potentially trigger a capital gain but you will be able to use your personal capital gains allowance of £11,100 to offset this gain.

steve@bicknells.net