Can someone help me with VAT Taxes - UK?

[Berry1]

Hello,

Can anyone help advise me.  Do I need to pay tax on my whole Airbnb turnover or just the profit?

I am based in the UK and my turnover has gone past the VAT threshold.

Should I be filing for VAT on any profit or does it have to be on the full turnover?

Please help as the VAT bill for the turnover is massive. 

Thanks

[Richard152]

Hi Berry,

I am almost at the VAT threshold, and I'm trying to find the same answer.

I have a VAT specialist from the VAT office calling me tomorrow, to give me the answer.

I figure that if we have to pay vat on our rental income, then it's not worth going over £83,000, because then you would have to pay 20% of that to the vat office.

Even if your takings went up to £100,000, you would only be left with the original (rounding down) £80,000, so what's the point?

The only way around that would be to add 20% vat to all your prices, but would that take you that much more out of the market as your prices would be so much higher?

And if you did that, how would that work with Airbnb?

My net income works out at about 50% of my Airbnb rental income, so one question I will ask this guy is do I have to pay vat on the net income or gross income? It seems unfair if I have to pay vat on the gross income, as that would mean that I would be paying vat on all my overheads, which is NOT income.

I'll let you know what this vat guy says, but contact me if you wish, here or on 07399946765 or bighousebath.com

[Jeff158]

VAT has nothing to do with income

VAT is payable on your turnover (all sales)

The VAT you pay on purchases in the course of running your business are deductable from the VAT payable on sales.

There is talk of VAT being reduced to 5% for holiday accommodation which would be much easier

I would be interested to hear what the VAT office has to say

[Richard152]

The VAT office said that the threshold is now £85,000. If I go over that, then I will have to register for VAT, unless I can show adequate evidence that I'm not going to reach that threshold in future years.

My new specialist accountant tells me that I if I register, I must simply raise my prices by 20% and explain to the guests that their booking cost does include VAT, just so they know, though I don't have to tell them, I believe. 

If I have any bills for maintenance work or anything that include vat, I can claim that vat with my vat return, so I will pay a little less than 20%.

Interestingly, I can claim my Council tax on my normal tax return as a business cost.

And I can claim anything that is a cost to the business, or even a part cost if I had been living in my property, which I don't, so I can claim it all.

[Ross156]

you should tell your guests if VAT applies. If your guests are limited company owners staying away from their city on business, they will not pay the VAT anyway, it will be offset as a business expense. This makes your rental 20% more attractive to workers, so its important to mention it.

[La5]

I'm in the similar situation but the main differnce is my payout goes to the bussiness account (a property agency) doesn't deduct any cost of course like council tax and bills and rent to landlords etc, if i'm facing now to pay 20% of the turnover I'll be fxxxed up as all my profits doesn't even enough to cover the 20% vat.   😞 

[Richard152]

Yes. so when my income rises to £85,000, the actual profit after cleaning and maintenance will be only £25,000. So the 20% vat on the turnover of £85,000 will be £17,000, reducing my profit to £8,000. That's crazy.  So, I will have no choice but to add the equivalent of 20% vat onto my prices, in order to protect my income. Crazy, but that's how it is.

[Richard152]

Hi Berry,

The first time that you register for VAT, you will not have to pay vat on your income before you had registered for vat.

But now you must add 20% to your prices for the future years, so that your income is 20% more, which will be sufficient to pay the vat. Vat is chargeable on the whole turnover of your business, after you have registered.

Normal income tax is only payable on your net profit. 

This information is fresh from the vat office, so it's accurate.

[Harry67]

I'm exactly in the same boat right now. VAT, corporation tax, personal income tax, hosting fee's, cleaners, set up costs, utility bills etc etc.

I have 12 properties but at this rate, I literally dont make any money anymore.

I've been told that if I let the property to the same person for 28 days or more, I don't pay VAT.

[Jeff158]

Hi @Harry67

VAT is a pain in the bottom,

I don't charge VAT on long term residential lets and I cannot reclaim VAT on the running costs.

I do charge VAT on commercial/Industrial lets as the tenants are VAT registered and I can reclaim VAT on the running costs.

If you wasn't a LTD Co which makes things complicated I would say:

Do you love your wife lol. Split the property's in to completely seperate yours and hers, double your VAT threshold.

[Tom817]

Hi Richard,

What you say is interesting. I was thinking of registering voluntarily in order to claim VAT back on my last 2 years' expenditure (apparently you can go back 4 years). It seems odd that I can do this but will not have to pay VAT on the income before registering. But putting up my prices 20% will arguably reduce my bookings so not ideal. So thanks for the input.

[Richard152]

I have recently raised my prices by 20% in order to anticipate my having to register and pay vat on my income in the future as I'm now over £85,000 and my first 12 months is not yet over.

However, I think that my bookings are already being impacted, and I'm now considering bringing my prices back down by 20%, and then refusing to take any bookings that take my income over the VAT threshold. of £85,000.

Theoretically, if you raise your prices by 20%, then your guests will be paying your vat, which is as it should be, but if by doing so, your bookings start going down, because your raised prices start to put off the guests, then it seems like a pointless exercise!

I think it would be more fair if we had to pay vat on income over £85,000, but not the whole amount.

[Jeff158]

Hi @Richard152

I know a lot of B&B owners who close in the winter to keep below the VAT threshold.

Its a good solution and you can travel in the down time.

[Richard152]

Yeah, that seems to be a good idea!

[Peter1094]

Funnily enough I read this while looking for something else.

The WHOLE issue of VAT is far more than 50 shades of grey and depends on your circumstances.

Generally, the letting of residential accomodation is exempt from VAT, but the letting of holiday accomodation is not.

Take the time to read

Hotels and holiday accommodation (VAT Notice 709/3)

and

VAT on land and property (Notice 742)

I hope that helps some.

and (if you let commercial property

 Opting to tax land and buildings (Notice 742A).