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+44 (0)141 221 2984

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Stirling
+44 (0)1786 451745

Dumbarton
+44 (0)1389 765238

Hamilton
+44 (0)1698 459444

French Duncan

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Furnished Holiday Lets - VAT

The default position for supplies of land and property is that such supplies are exempt, with some notable exceptions.  One such exception to this rule is the provision of holiday accommodation, which is standard rated. 

Generally, holiday homes are dwellings whose use throughout the year or as a principal private residence is restricted.  This might include holiday chalets and sites for holiday chalets, caravans, huts and house boats, or any other accommodation which is suitable for holiday or leisure use.

In some cases, private residential accommodation might be utilised for holiday accommodation, which can mean an exempt property might be used to make taxable supplies.  However, it is generally less likely that taxable holiday accommodation will be used for exempt residential purposes. 

Where a residential property is used for mixed purposes throughout the year, i.e. part residential and part holiday accommodation, the VAT liability of supplies must be determined based on the facts as they apply in each case.  Factors such as how and where the property is advertised together with the duration of lets and turnover of tenants will need to be considered when reaching a decision on VAT liability.

Where VAT taxable turnover received from holiday accommodation in any 12 month period exceeds the VAT registration threshold, currently £85,000, then the business will be required to register for VAT.  All future income received from holiday letting will be subject to VAT at the standard rate, though residential letting income will remain exempt, meaning the business may be required to carry out partial exemption calculations to apportion VAT incurred on costs.

As VAT is a specialised area of tax, where you breach the registration threshold and are unsure what to do, please contact French Duncan VAT Senior Manager Maria McConnell either by email to m.mcconnell@frenchduncan.co.uk or call 0141 221 2984.

This blog is part of a series of eight, you can see all other blogs here:

1. Furnished Holiday Lets - an introduction & your obligations

2. Furnished Holiday Lets - qualifying conditions & elections

3. Furnished Holiday Lets - Income Tax & Capital Gains Tax

4. Furnished Holiday Lets - Non Resident Landlords

5. Furnished Holiday Lets - Making Tax Digital

6. Furnished Holiday Lets - Inheritance Tax

7. Furnished Holiday Lets - Conclusion & Services

 

 

Incentivising your employees – benefits to using an EMI scheme

Are you thinking about incentivising your employees or and you reading this and asking why would I want to?

I have found that Enterprise Management Incentive (EMI) schemes are very popular among private firms.  They are used to encourage key employees to remain with the company, to reward them for their performance and to encourage and to inspire the employees to think commercially about increasing the value of the company as they are now entitled to a slice of the action on sale.

Some employers are reluctant to use share schemes as they may not want to give shares to all their employees.  Unlike other share schemes, with the EMI scheme you can be selective with who you wish to include.  EMI schemes work by the employer granting an employee the option to buy shares in the company.  At a future date, within 10 years, the options are exercised and the employee now owns the shares.  In a lot of cases this is structured so that the options are exercised in the future when the company is going to be sold.

Furthermore, the tax advantages associated with EMI schemes are particularly beneficial to the employees.  With an EMI scheme, the value of the shares is agreed with HMRC at the date the options are granted.  There is no income tax charge at the date the options are granted and if the options are granted at market value (MV) there is no income tax charge at date of exercise either.  This can be very beneficial where the company has increased in value between grant and exercise of the options.

When the shares are sold capital gains tax (CGT) will be calculated based on the difference between MV at sale and the price paid by the employees.  Where the shares are EMI shares and the relevant conditions are met the shares may qualify for Entrepreneurs Relief (ER) and thus any taxable gains would be subject to CGT at 10%.  If the shares don’t qualify for ER, CGT would be payable at 20% for higher rate tax payers.

There is a lot to consider before pulling the trigger on this and I would encourage any employer thinking about going down this route to get in touch with any questions.  At French Duncan we have great experience in helping our clients through this full process from start to finish.

Furnished Holiday Lets - Non Resident Landlords (NRLs)

As stated in one of our previous blogs one of our biggest concerns when it comes to landlords is the incorrect assumption that there is nothing to report if there is no profit from the business.  In some circumstances this can lead to HMRC enquiries, interest and penalties being charged because a landlord has not understood what is required of them.

Owners of Furnished Holiday Lets who are not resident in the UK have obligations under the Non Resident Landlord Scheme (NRLS), just as they would with any other property income. You must comply with the requirements of NRLS as well as considering your tax position in your country of residence.

Although there is officially no withholding tax on the payment of rental income to NRLs, the NRLS requires an effective withholding tax to be deducted by either the tenant or letting agent, as appropriate, unless the landlord obtains permission from HMRC to receive the rental income gross.

A NRL can apply to receive his rents gross by completing form NRL1i (individuals), form NRL2i (companies) or form NRL3i (trustees and estates). HMRC will normally grant permission for this if the landlord can demonstrate that:

  • he has complied with his UK tax obligations (ie he has submitted the tax returns and paid the tax due to date);
  • he has never had any UK tax obligations; or
  • he does not expect to be liable to pay UK income tax for the year in which his application is made (note that in order to qualify under this heading, it is not sufficient that no liability will arise in respect of the let property; there must be no liability to UK income tax at all).

HMRC may refuse or withdraw permission to receive gross and in these instances an appeal would need to be sent to HMRC in writing within 90 days of permission being withdrawn.

The NRL will then be required to complete an annual Self Assessment tax return and ensure that any liability is paid on time.

If you are looking for advice relating to your FHL, please contact French Duncan Tax Senior Jen Kinnear either by email to j.kinnear@frenchduncan.co.uk or call 01786 451 745.

This blog is part of a series of eight, you can see all other blogs here:

1. Furnished Holiday Lets - an introduction & your obligations

2. Furnished Holiday Lets - qualifying conditions & elections

3. Furnished Holiday Lets - Income Tax & Capital Gains Tax

4. Furnished Holiday Lets - VAT

5. Furnished Holiday Lets - Making Tax Digital

6. Furnished Holiday Lets - Inheritance Tax

7. Furnished Holiday Lets - Conclusion & Services

 

 

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