Every year, landlords are faced with the burden of filing their taxes on time to avoid having to pay any penalties. While a lucky few always manage to stay up to date with their receipts, a huge majority find their tax filing process daunting — especially if they’re doing it for the first time.
To help make your filing process easier next, and every, tax season, here are some expert strategies courtesy of UK Property Accountants CEO, Raju Gajurel, to help make your filing process easier for every tax season.
VAT on Serviced Accommodation
Value Added Tax (VAT) is one of the most essential aspects of doing business in the UK, so knowing how it works is imperative to avoid running into any trouble with HMRC. This is especially true for companies involved in purchasing and reselling travel, accommodation, and other related services as a primary provider or an undisclosed agent.
Companies involved in providing holiday accommodation usually attract 20% VAT. As such, if your turnover exceeds the threshold of £90,000, registering for VAT becomes an essential task that needs to be completed as soon as possible.
Having to pay a 20% VAT can mean parting with a substantial amount of money; however, there are ways to decrease the tax burden.
Tour Operators Margin Scheme (TOMS)
The Tour Operators Margin Scheme (TOMS) is designed for businesses that buy and sell travel services as a principal. Applying for TOMS can help reduce the total amount of tax by a substantial amount, making it a commonly employed strategy in the travel and tourism industry.
Learn more about Tour Operators Margin Scheme (TOMS) and Serviced Accommodation.
Below is an example of how TOMS can help reduce your VAT payable:
Suppose you collect £1,000 from guests during a month and incur total expenses of £700 in the month; your margin is £300. You pay VAT only on £300 (which is £60 at 20%) instead of VAT on £1,000 (which is £200 at 20%), saving £140 VAT.
As seen above, TOMS can help reduce the VAT payable by as much as five times the original amount. However, there are a few conditions you need to meet for TOMS to be applicable:
- Supply of ‘Travel Services’.
- Supplier is acting in its ‘Own Name’.
- Service is acquired from a third party and is supplied without ‘Material Alteration’ or ‘Further Processing’.
- Services are supplied ‘for the benefit of the traveller’.
Furnished Holiday Let
A Furnished Holiday Letting (FHL) is an increasingly popular form of investment. It offers a unique opportunity for property owners to earn income by renting out their properties as holiday accommodations. The reason behind its popularity is the special benefits you receive upon qualifying for FHL.
The conditions for qualifying for FHL are as follows:
- The property must be furnished.
- The property must be situated in the UK or a state in the European Economic Area (EEA).
- The property must be available for commercial letting as holiday accommodation to the public for at least 210 days in the relevant 12-month period (usually the tax year).
- Out of those 210 days, the property must be let out for 105 days or more as holiday accommodation — the ‘letting’ condition.
Some of the tax reliefs available to you upon qualifying for FHL include:
- Capital Gains Tax Reliefs / Rollover Relief / Investors’ Relief
- Earned income for pensions (i.e. make pension contributions to reduce tax).
- Capital allowances for furniture, fixtures, and equipment.
- No Section 24 interest relief restriction.
Additional Tips to Reduce Annual Tax Liabilities
Here are some additional tips to keep in mind if you are looking to reduce your annual tax liabilities:
- Claim “Use of home as office” expenses.
- Claim “Mileage allowance”.
- Change your use of properties to qualify as a FHL and get full interest relief.
- Transferring a share of your properties to your spouse/partner.
- Correction in classification of revenue & capital expenses.
- Use limited companies.
- Rent a room relief of £7,500 (or £3,750 for joint ownership) within a main residence.
If you would like to learn more, book a Free 15-Minute Discovery Call with UK Property Accountants.
For a more detailed exploration of the above topics, view the Share webinar we ran with Raju Gajurel, ‘Make Tax Season a Breeze: Expert Insights and Strategies.’ Access the recording now on our Share webinar page.
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