UK VAT

[Robin-and-Lorraine0]

We will most likely go above the £85k threshold in the next financial year, so need to plan for the impact of VAT (or plan to stop hosting for the year once we are close to the limit).

Our current Airbnb invoices show:

Host payout

Host service fee (which includes VAT)

Payment to us

After VAT registration, do we then pay VAT on the full "host payout", or just the payment to us? Similarly, while our income tax is based on the payment to us, is our turnover for VAT purposes the payment to us or the full host payout? The difference between the two is significant when it comes to determining when we reach the £85k threshold!

Many thanks for any help

Robin & Lorraine

[Mike-And-Jane0 · Accepted solution]

@Robin-and-Lorraine0 my understanding is that it is the gross revenue that needs to be under 85K. This is what you would put on a tax form and then you would expense the Airbnb service fee (inc VAT) even if not VAT registered.

Once you hit the VAT limit the 20% (roughly) reduction in income doesn't seem sensible to me even though you can reclaim VAT on supplies etc. Unless you will go way over the limit I would take a holiday rather than register for VAT. If you would earn17K over the limit a 10 week holiday would leave you with the same income and a far better work-life balance.

[Robin-and-Lorraine0]

@Mike-And-Jane0 thank you for that. I believe it is possible to register for flat rate VAT, which for accommodation is 10.5% that you actually pay to the tax man (with flat rate VAT you don't get to claim back VAT on expenditure, but this is still better than paying 20% and claiming back VAT on every item you purchased).

The only advantage of VAT registration is being able to claim back VAT spent in the last 4 years, which is quite significant for us. However, the 10.5% hit is still considerable. But the snag is that once you are close to the limit, the risk of going over by accident is a worry.

[Helen3]

Why not speak to your accountant- so they can advise you on possible options @Robin-and-Lorraine0 ? 

[Adam201]

Hi, @Mike-And-Jane0 @Robin-and-Lorraine0 

Be careful if you 'take a holiday'. To qualify for the FHL income tax & other benefits remember that your property must be available for letting for at least 210 days a year and actually let for 105, see HMRC Guidance HS253. 

Also, the registration limit is not applied on a business by business basis – it relates to all of the business activities undertaken by a particular taxpayer (but not employment and other investment income).

For example, if you own a farm with a turnover of £75,000 and buy or develop a barn for self-catering accommodation that generates an income of £11,000 then the threshold has been breached and you need to register to bring both the farm and FHL within the scope of VAT.

Also remember that the £85,000 is a rolling threshold, not a financial year and that this has been fixed until 31 March 2024, so you would be limiting your turnover for quite a while. 

Hope that helps?

[Mike-And-Jane0]

@Adam201 we will never get near 85K so not a problem for us but I was wondering if the limit is effectively doubled if two people own the holiday apartments.

[Adam201]

Hi @Mike-And-Jane0 ,

I'm not an accountant, so please check, but my minor research suggests that if held jointly and no other businesses are involved then no it won't double, but it's complicated. I have read via a Marshland Nash blog that:-

"if someone runs a business and also a FHL as the combined income counts towards the VAT limit. Therefore a taxpayer with a VAT registered trade and owning an FHL would have to charge VAT on FHL rents, but if they owned the FHL jointly with someone else it would not need to be VAT registered if under the limit."

However, the advantage of jointly owning the property (as individuals, rather than as a company) is that you can split the income and profit, so you can make the most of any personal tax allowances that you might have.

[Fit76]

If you live and trade in the UK, you are not required to register for VAT until you reach the threshold.

However, whether you make a profit or a loss in the future, you must still pay VAT if you are registered for it. Corporation tax is the only tax you do not have to pay if you make a loss. 

According to this (https://howyoumatter.com/cost-of-living-in-canada-vs-uk/) research, Canada is far superior to the United Kingdom in terms of sales tax. As a result of government decisions, tax rates rise and fall.