2 Mins
Recent years have seen a boom in holiday letting across the UK as COVID restrictions and cost of living conditions encouraged us to use holiday lets – including through online letting sites like Airbnb, Cottages.com, and Vrbo.com.
Is VAT due on supplies of holiday letting?
Yes – where the supplier is registered for VAT. There is an obligation to register if annual supplies exceed £85,000 at any month end. Many smaller providers trade under that threshold so do no need to register for VAT and charge VAT on this income. This helps keep their charge rates more affordable – but see ‘VAT on expenditure’.
Can I claim VAT on expenditure?
Any VAT incurred in running the holiday lets trade is only ever recoverable if the business is registered for VAT. Many operators incur relatively modest levels of VAT – e.g., energy, cleaning materials, and main costs like cleaners do no incur VAT so it is often most efficient to be registered and forgo recovery of VAT on routine operating expenditure.
How about claims for VAT on capital expenditure?
Where operators make significant capital expenditure to either build or renovate holiday letting accommodation (including professional feels), all of which will incur VAT at the standard rate when supplied by registered contractors, it’s more likely that registration for VAT will provide a benefit – a cash-flow boost in recovering VAT incurred. VAT registration is available even if the works are not yet completed (as an ‘intending trader’). Voluntary registration is available – so even if initial annual turnover is below the mandatory registration threshold, businesses can register to reclaim VAT incurred – albeit rental prices need to then be uplifted to take account of the fact that VAT will then be due on income.
What happens if after registering, my turnover falls below £83,000?
It is possible to deregister for VAT where turnover drops below this threshold (or never reaches it if you voluntarily register). Whilst that then allows you not to add VAT to your income (and no VAT on expenditure is then recoverable), at the point of deregistration, there is a ‘deemed supply’ of any stocks and assets (goods) on hand upon which VAT recovery was originally taken. This is based on a valuation at the point of deregistration and if the value is less than £5,000, no VAT is due. If any capital works have exceeded £250,000 further advice should be sought.
What records do you need?
Details of income and expenditure, along with the related invoices/receipts will be required to compile regular VAT returns.
This article contains information of a general nature. Given this, further advice, specific to your circumstances should be taken before making any financial decisions.