VAT on Furnished Holiday Lettings

02/12/2023 - 5 minutes read

VAT on Furnished Holiday Lettings is based on the same VAT treatment as hotel accommodation, B&Bs etc. and is subject to VAT at the standard rate (currently 20%).

VAT on Furnished Holiday Lettings will be applicable for a FHL business with turnover above £85,000 & it would need to be registered for VAT.

Where the owners of the FHL business are already registered for VAT in connection with another business activity, for example, a farm business, the FHL income would be subject to VAT from the outset, regardless of the levels of income.

VAT on Furnished Holiday Lettings

VAT on Furnished Holiday Lettings

When do you need to register for VAT on Furnished Holiday Lettings?

Anyone with an FHL with gross rentals exceeding £85,000 in the previous 12 months or expected to exceed £85,000 in the next 30 days is required to register for VAT.

VAT registration may offer some benefits in allowing for the VAT recovery on refurbishment, maintenance and day-to-day running costs associated with the property in question.

Accommodation that qualifies as a FHL

To qualify as a FHL your property must be:

  • – in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway
  • – furnished – there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture

The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs but did not make a profit, the letting will still be treated as commercial.

All your FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business. You will need to keep separate records for each FHL business because the losses from one FHL business cannot be used against profits of the other.

We discuss this in further detail here and Hmrc’s detailed guidance provides further clarity.

What is the Flat rate VAT on Furnished Holiday Lettings?

The Flat Rate Scheme (FRS) for VAT offers an alternative to the traditional method, whereby VAT is still charged on all sales at 20%, however the business only pays over a flat percentage of its VAT inclusive turnover. No input VAT however can be reclaimed on expenses within the exception of any capital goods costing in excess of £2,000.

The FRS % to be used is based on the sector the business is operating within, and for FHL this is 10.5%. For example, a business with VAT inclusive turnover of £100,000 would pay across £10,500 of VAT in the year however it will have charged £16,667 of VAT to customers. The balance retained is meant to compensate the business for not being able to reclaim input VAT on expenses incurred.

Prior to registering for VAT, a quick calculation can be done to ensure there is a net benefit of using the FRS. There is also a 1% discount applied in the first year so the rate would drop to 9.5% before reverting in year two.

There are a few other advantages that can be realised when registering for VAT either under the traditional method or FRS. The business can look back 6 months from the date of registration and reclaim VAT on expenses incurred. They can also go back four years and reclaim VAT on any capital assets purchased that are still in use at the time.

How can MCL Accountants help with your queries on VAT on Furnished Holiday Lettings?

Contact MCL Accountants on 01702 593 029 if you have any queries on VAT on Furnished Holiday Lettings or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.