Guest blog post – VAT On Furnished Holiday Lets
Taxes, VAT and the processes of registering for such things can be confusing, take time to digest and be difficult for owners to get their heads around. We’ve consulted with Steve at Marsland Nash Associates who’s broken the process down into manageable information to help you navigate this and potentially save yourself thousands of pounds
Understanding VAT
Income received from furnished holiday lettings is a taxable supply for VAT purposes. What this means in practice is that the rental income you receive will be subject to VAT if you are registered for VAT.
VAT follows the person or persons involved in running a business and not the business itself. What this means in practice is if you already run an existing business that is VAT registered and you also own a property that you let out for holiday use then VAT will apply to the rental income you receive as well as your other business income. As such, it is vital that you take advice if you think this might apply to you.
When do I need to be VAT registered?
You are required to be registered for VAT when your cumulative taxable turnover exceeds £85,000. The turnover calculation is over a rolling twelve month period or from the date your business started if it has been running for less than twelve months. As such, at the end of every month you should calculate the cumulative turnover to date to determine if you have to register for VAT.
Should the cumulative turnover exceed £85,000 at the end of a particular month, you then have one month to register for VAT and you will be registered for VAT with effect from the beginning of the month following that. As an example, say your cumulative turnover exceeded £85,000 at the end of May 2021, you would then have to register for VAT by 30 June 2021 and you will be registered for VAT from 1 July 2021. The only exception to this rule is where in one particular month, that months turnover is more than £85,000 in which case you will be registered from the beginning of that month. Once again, please take appropriate advice as missing the registration date can the expensive in VAT terms and you could face a penalty for late registration for VAT.
You can register for VAT voluntarily if your turnover is below £85,000 and you may decide to do this if you are going to incur substantial costs in relation to the property on which VAT has been incurred. You should speak to your adviser as there could be long term implications if your turnover is not likely to exceed £85,000 after the costs have been incurred.
CLAIMING VAT ON EXPENSES AND UNDERSTANDING RETURNS
If you find yourself having to register for VAT it is essential that you speak to an adviser as you may well be able to make a claim for VAT on some of the expenses that were incurred before you had to register for VAT. These costs are included on the first VAT return you complete.
As a VAT registered business you will have to submit a regular VAT return to HMRC. This can be completed monthly, quarterly or annually, but generally most VAT registered businesses complete their return quarterly. You may have heard of MTD which stands for Making Tax Digital and at this time we have MTD for VAT in place. This means that you will need to use some form of digital software to complete your VAT return and submit it to HMRC. Examples of digital software that will help you with this are Sage, Xero, Quickbooks and there are others available as well. You can if you wish use a Spreadsheet such as excel, but you will need bridging software to link the spreadsheet to HMRC systems to file the VAT return.
The VAT return you complete will include output tax, which is VAT that is included in the rental income you receive and input VAT, which is VAT that you are allowed to recover on expenses related to the rental business. Where the output tax is more than the input tax you will have to pay this HMRC and where the input tax is more than the output tax, HMRC will refund you the balance. Generally, you should expect to be paying VAT to HMRC as it is likely that your taxable income will be in excess of the taxable expenses you incur.
VAT is a probably the most complicated tax we all face in the UK and whilst some answers to certain questions are relatively straightforward, some are hugely complex and specialist advice should be sought.
Fresh Escapes can highly recommend Steve Marsland and Nathan Murphy at Marsland Nash Associates who are Chartered Tax Advisors and Accountants, to answer any questions you might have. They can be contacted on 01803 527599 or steve.marsland@marslandnash.com and nathan.murphy@marslandnash.com
