If you are the owner of furnished holiday lets (FHL), or are considering letting out your property in this form, you may be unaware that the income from your accommodation could be liable to VAT.
It is commonly understood that VAT is not applicable to property income, even when the £85k VAT threshold is breached. But FHLs are treated differently. While residential lets are considered an investment, running a FHL is considered a trade – putting them in the same bracket as hotels and B&Bs.
So, if the VAT turnover threshold for your FHL is reached, you may need to register for VAT. The £85k threshold will apply for all of your properties combined. So, even if the turnover for each property is individually below £85k, VAT registration will need to be made if the combined income is above £85k.
You will be able to counter the VAT liability on income received with the VAT on property-related expenses you have incurred. Expenses such as repairs and refurbishment costs are likely to have VAT on them.
You also have to be aware when expensive property purchases exceed £250k. For purchases over this amount, something called the Capital Goods Scheme comes into place, and your property will be monitored over a period of ten years to ensure that it is being used wholly as an FHL.
There are other schemes in place to help eliminate this tax burden of being VAT registered, such as the Flat Rate VAT Scheme and the Tour Operators Margin Scheme (TOMS).
We have experience of working with property companies and VAT-registered businesses, so please feel free to contact us if you have any questions on this.