VAT Taxes - United Kingdom

Hi all,

As we are approaching a new Tax year I have been going through the Airbnb income we have made throughout the past 12 months. We have had 4 properties used during the 17/18 tax year. 1 of which we no longer use and 1 that only started at the beginning of February 18. Now, our income from the 4 is at just above £85k. 2 out of the 4 properties are at over 105 days, however the other 2 are below. 1 being at 97 and the newest one being at only 21. My question is, do we need to register for VAT due to this or are we exempt as 2 of the properties are not classed as a FHL?

We obviously do not want to register as it means 20% of our income is about to be taken from us, however we will need to bite the bullet if required.

Thank you in advance.

Starbnb Holiday Home Management

Hello @Starbnb_Management

Your accountant or the HMRC is best placed to answer this one. (With that level of income I am presuming your have an accountant).

There aren’t many UK hosts here and mostly we have one place so can’t advise on VAT related issues.

I thought VAT was dependent on turnover - I have no clue what FHL is :slight_smile:

VAT is just tax you collect on behalf of the government so isn’t ‘income being taken from you’.

If you don’t want to collect VAT, you can keep an eye on your turnover and block your properties once you get towards the threshold.

Good luck

Hi @Helsi

Thank you for your response!

We do have an accountant, however we work in different offices, so thought it would be best to see if I can find the answer elsewhere before going to him!

FHL stands for Furnished Holiday Let - It’s a term that the UK government use.

Generally speaking VAT is based on your income, however I believe in the UK each holiday let is classed as its own business as such which requires the property to be let out for over 105 days. This is where my dilemma starts as 2 of the properties have not reached the 105 day mark, however we have hit the £85k VAT threshold between the 4 that we have.

Our next tax year starts at the beginning of next month, so we will need to have a secure answer for this before then.

Thank you for help anyways!

All the best,

Starbnb Holiday Home Management

Thanks for the clarification Matt.

If you have an accountant - then definitely ask them - providing this sort of advice is part of what you are paying them for.

Do let us know what they say - could be useful for future UK hosts.

Like Helsi, I believe you have to reach a certain income threshold to be registered for VAT. I don’t know the ins and outs for holiday lets but I do know that going over the threshold is an absolute pain; I don’t recommend it for sanity’s sake! I had to register in a previous working life as an interim manager, and my accountant failed to inform me of the ins and outs. If nothing has changed since then, the VAT Office is part of Customs and Excise, not HMRC, and they are absolute thugs, believe me. They are threatening over the phone, send out demands for payment that you probably don’t owe, you then have to add VAT to your own invoices, and they cause panic until you get used to what needs to be done to keep them off your back. I simply cut down my earnings so I wasn’t liable anymore, de-registered but still received abusive letters and calls for at least a year. I couldn’t prove that my earnings had dropped until the year end, they didn’t believe me or simply just enjoyed being psychopathic.

So, good luck!

@Joan Blimey it sounds like you had a fun time!

I would much prefer to stay away from getting VAT registered as it will then have an impact on the rest of the business. I am aware that more than likely at some point we will definitely need to become registered, but if push came to shove, we could always change property entities and put them under a different business name in order to temporarily prevent this.

I am having a meeting next week with our Financial director and MD to go through this, so will let you all know the outcome afterwards!

I am swaying towards, we have not met the requirements for VAT due to 2 of the properties failing to reach the 105 day threshold, therefore meaning it is not a Furnished Holiday Let :smiley:

I’ve just had a look on the .Gov site and it seems like a holiday let is applicable for VAT once the income is over £85k though there may be some exemptions on this if you let the property out for longer, residential stays outside of peak season.

My holiday business is registered for VAT but that comes under a different scheme (TOMS, Tour Operator Margin scheme) where the VAT is based on our actual margin rather than turnover. I’d sort of assumed holiday lets would have come under the same banner but it doesn’t look to be the case. We report figures quarterly and it hasn’t been much more than a 15 minute job to be honest but it does bloody well hurt handing over our hard earned cash…

If it’s not a FHL, you’ll have to pay council tax - if it is, then you may be exempt (small business exemption as a holiday let). Work out which is of the greater benefit, not paying VAT or not paying council tax.

Great answer @Chrissie

In terms of VAT it may help you to remember the VAT is not your hard earned cash - just tax you are collecting on behalf of the government from your guests.

Her Majesty’s Revenue and Customs is a merger of the taxman (Revenue) and the Customs Office you talk about. It’s all just one body now?

@Starbnb_Management, remember also that once you fall into VAT, you’re charging another 20% on top of your price, which makes you that much less competitive, or absorbing that in your current price, which makes you that much less profitable.
It might help to work out whether reducing your business by x weeks and staying non-VAT will make the same money as you would by all that extra work and after the extra tax remitted.

Stay under 85k GBP and all is good, if you need to register for VAT you need to rethink your business model. Steve (for Joan)

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Ha, you’re not an accountant by any chance? That’s like saying ‘make sure you keep your earnings under £xx then you won’t pay more income tax’. Whatever happened to aspiration? :grin:

I guess you have read this?

VAT really is a gnarly issue @Starbnb_Management. We are VAT registered, first on flat rate 10%, then last year had to go up to 20% as the rules changed. The problem is that we don’t purchase much, so can’t claim much back. And airbnb don’t provide you with a VAT receipt for their host fees. I have to work it out myself, its not much every little counts. Can you separate the properties into different businesses, so that you can stay under the threshold that way? Mind, HMRC would probably take a dim view of that… Good luck.

@Helsi that is true only if you claim back as much as you pay ie if you install windows, you buy the thing inc VAT and sell the thing inc VAT, but you claim back the VAT you originally paid, so its almost a VAT neutral situation, and can help with cashflow. If, however, you are providing a service rather than a thing, say a one-man-band consultant, there is very little VAT you can claim back, making you a net contributor. HMRC used to acknowledge this with a lower flat rate for service providers, but they’ve now moved the goalposts…

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Hi @CampingPodKate

I think what I was referring to was if you collect £250 in VAT, then you pass this £250 onto the VAT man.

The Tax man isn’t taking income from businesses, as Starbnb Management said, as it is not income but simply tax you are collecting on the government’s behalf.

I used to run a PR agency, so have quite a good understanding of how it works when you provide services.

I wouldn’t advise an artificial separation of businesses for VAT avoidance. If you run more than one business, there is a risk that HMRC will review each business activity to decide whether the businesses should be viewed as one business for VAT purposes.

If either or both “businesses” are not currently VAT registered and the combined turnover from the businesses when looked at together exceeds the VAT registration threshold, then HMRC may require the businesses to be VAT registered retrospectively from the time the threshold was breached.

This could land a business in a whole lot of hot water as businesses dealing with non-business customers will find it extremely difficult to retrospectively charge VAT to customers and could be left with the output VAT due on these sales as an additional cost to their business.

Not necessarily. In my business we price our holidays according to market rates and our margin requirements to cover operating costs. As we’ve passed the VAT threshold (which applies to our gross margin rather than turnover), we can’t price our holidays any higher as we’d be totally uncompetitive. We have to pay the VAT out of our profit. This means there’s a level where if you’re only £30-£40k over the threshold, you make less margin than if you weren’t. Fortunately we’re significantly over that now but it’s not like a B2B invoice where we can simply lump the VAT onto the invoice and your customer doesn’t think twice.

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Totally agree on trying to separate the businesses, HMRC would soon smell a rat! You may just get away with having a property as a personal source of income separate to the business but you’d need to research this carefully. If its a tax ruse, it looks and smells like a tax ruse, HMRC are likely to see it as such.

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No, I’m not an accountant, nor was I. I was an interim health and social care consultant/interim Director, who specialised on cleaning up failing adult health and social services departments. Lots. Given that I was usually brought in after particularly awful Serious Case Reviews were published, or even to lead such processes, my aspiration was to prevent any further serious f-ups, improve the quality of service provision, protect service users and improve the reputation of whatever organisation contracted me in. I was very well paid for my services, had no time or need to aspire to more, or to deal with the VAT office shouting at me me in the middle of a particularly harrowing Safeguarding emergency. I didn’t do it for the money; I was passionate about what I could do. The money just happened.

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Hi @Helsi

The benefit of us transferring one or two of the properties in to another businesses name is the property landlord then becomes a different entity. It is only a thought though. We will be having a formal meeting in relation to this on Thursday. We have 2 main companies. One is our Investment and general letting company and the other is Starbnb where we manage other peoples holiday lets for them. We want to avoid our investment company becoming VAT registered, however Starbnb will no doubt on its own become VAT registered at some point within the next 24 months.

It is a very touchy subject, however more and more people will face this over the next few years as Airbnb is becoming desirable for investors looking to earn a higher monthly income rather than doing BTL’s for residential lets.

I am looking at 2 more properties myself on Monday to potentially use as part of our own Airbnb portfolio, so even if we miss out on being VAT registered this year, unfortunately next year we will have no escaping this! Guess at some point, we just have to just bite the bullet and hand the tax man a nice cut of our hard earned money.

I will keep you all updated as to the outcome and what information we find out!

Thank you all for your input and advice so far! There has been good advice given by you all :slight_smile:

Speak soon, take care all!

Starbnb Holiday Home Management

Hey there,

May I just ask why you became VAT registered? - Surely transferring one of the properties in to a different entity would of prevented this from happening, therefore meaning that you benefit from not paying 20% of your earnings to the tax man?

All the best,

Starbnb Holiday Home Management

@Starbnb_Management Hi there. We had to go VAT registered as our turnover went over the threshold. We knew this was going to happen so we went all out to smash the threshold. We are a holiday park, with camping pods, holiday cottages and touring pitches - all on the same site. There is no way we could have split up the business. HMRC would have straightaway realised it was purely for VAT purposes. I understand there are some occasions when you can separate businesses, often by incorporating one part, thereby avoiding VAT, but not in our case. We just have to absorb the cost and pay the tax. We do claim some back, and end up paying about 12%. And last year our business rates tripled, but that’s life for you!

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