Furnished holiday lettings and VAT

Those letting out holiday homes have, historically, been pretty relaxed about VAT reports and filings simply because they haven’t had to worry about them. However, this is not necessarily the case. Furnished holiday lettings are usually standard rated for VAT and must be registered for VAT once the owner’s turnover exceeds the VAT threshold. Fortunately for many, their furnished holiday lettings don’t typically reach this threshold and they avoid having to register for VAT altogether.

However, it gets a little trickier for owners of furnished holiday lettings who already have a VAT registration, from another enterprise, in their name. For such individuals, rental income from furnished holiday lettings will be standard rated for VAT regardless of whether or not the other enterprise has any connection at all with the property.

Let’s say, for instance, that a self-employed VAT registered tradesperson finds that they have enough put aside to invest in a small holiday home which they decide to hire out when they aren’t using it. This person would likely not realise that they would in fact have to pay VAT on any income from letting out the property, possibly making it less lucrative than initially expected.

One method of reducing the costs of letting out a property for holidaymakers by avoiding the VAT costs is to separate the VAT obligations of the individual from the VAT obligations of their other business. This can be done by taking on a partner and giving them a share of the business, making it a separate legal entity in terms of VAT. This would mean that the income from the property would be calculated on its own and may not be subject to VAT if it does not reach the threshold.

In addition to the above, those who are non-residents in the UK but own a property in the UK which they let out to holidaymakers will also be subject to VAT regardless of the amount of income they receive.  Whereas there is usually a maximum amount of income which can be received before having to register for VAT, non-residents with no permanent business establishment in the UK are subject to VAT on their furnished holiday lettings once they have surpassed £1 of income from the property.

There are, however, ways around this non-resident rule too, such as appointing a UK managing agent with the responsibility of managing the property. With specifically defined rules, this would essentially mean that the owner of the property would have a UK establishment and the income would be subject to the standard VAT threshold. But this option isn’t free and weighing up the management agent’s fees against the VAT costs would be wise.