Furnished holiday lets (FHLs) have a complex tax status, so the impact of the different financial support measures announced in the last few weeks will vary significantly from one business to another. Owners of FHLs therefore need to carefully consider their own position to determine which support they can access.
The key support measures are as follows:
- Tax payment deferral
- Access to bank finance through the Coronavirus Business Interruption Loan Scheme (CBILS)
- Coronavirus Job Retention Scheme (CJRS)
- Business rates holiday
- Grant support connected to business rates status
- Income support for some owners through the Self-Employed Income Support Scheme (SEISS)
There is detailed information on these schemes elsewhere on this webpage; this article explores how they might apply to FHL businesses.
Tax payment deferral
All tourism businesses are likely to see profits reduced this year and also next year as guests defer bookings into the following season. Regardless of the profit impact, the most important thing right now is cash flow. The tax deferral schemes are designed to help with this.
For VAT registered businesses, there is an automatic offer to defer VAT payments during the period 20 March to 30 June until the end of the 2020/21 tax year.
In terms of income tax, the second payment on account for the 2019/20 tax year, normally due on 31 July 2020, can be deferred until 31 January 2021. If you are expecting reduced profits in 2019/20 compared to 2018/19, the first payment on account which you have already made in January 2020 may be too high and we could apply on your behalf to have some or all of it refunded. If you would like us to review your position, please get in touch.
Coronavirus Business Interruption Loan Scheme (CBILS)
The Government is providing a level of guarantee to the banks in order to encourage them to provide finance at a time when they would ordinarily be reluctant to do so. Such loans may be necessary to ease cash flow, but you will have to pay the debt back. Please refer to the separate articles on this webpage which give further details of this scheme (scheme summary and updates).
Coronavirus Job Retention Scheme (CJRS)
If you have employees, the CJRS is designed to help you with the cost of wages. This involves “furloughing” staff who would otherwise be made redundant. The Government has agreed to pay a grant to employers to cover 80% of the wage cost of furloughed staff up to a capped limit, but you will have to make the initial outlay to pay the furloughed staff and the grant will take a few weeks to come through. Please see the detailed articles on our webpage which fully explain what we currently know about this scheme.
Business rates holiday
For those FHL owners paying business rates on their premises, there is a 12 month business rates holiday for 2020/21 for all retail, hospitality and leisure businesses in England. Most FHL businesses will already qualify for small business rates relief (or possibly rural rates relief) in which case this relief is of no benefit, but it could be beneficial for larger businesses such as holiday letting complexes. For those FHL owners paying council tax, there is no relief scheme and the council tax will continue to be payable.
Grant support
In addition to the business rates holiday, there is also grant funding available for retail, hospitality and leisure businesses of:
- £25,000 if your rateable value is between £15,000 and £51,000, or
- £10,000 if your rateable value is below £15,000
These grants are very welcome, but there is a restriction which may prevent FHL businesses from qualifying where the owner uses the property for their own holidays from time to time. It is not clear as yet whether there will be an allowance for a de-minimis level of personal use.
Self-employed income support scheme (SEISS)
The final scheme to consider is the SEISS which is available to the self-employed and partners of a trading partnership. To qualify, your self-employed trading profits must be less than £50,000 and more than half of your taxable income. Unfortunately, at this stage, it appears that owners of FHLs will be unable to benefit from this scheme.
The scant detail we have about this scheme suggests that it will be based on the information reported on the trading pages of self-assessment tax returns and not the FHL boxes on the property pages. It is entirely possible that the position of FHL business owners has been overlooked and this could be corrected at a later date. We will keep a close eye on developments in this regard.
Other points relevant to FHL businesses
- Day count limits: in order to qualify for FHL tax treatment, your property must be available for letting for at least 210 days and actually let for at least 105 days in each tax year. Many FHLs will not achieve these criteria for 2020/21. There are already rules which allow for a “period of grace”, but these may not help if you have two consecutive years of failing to meet the criteria.
- Loss relief: following the changes introduced in April 2011, relief for losses on FHLs is very restricted compared to the position for other trades. It is possible that the government will respond to lobbying, so be prepared to write to your MP and sign petitions.
- Although it was initially announced that the “mortgage payment holidays” given by banks and other lenders would not extend to buy-to-let mortgages, we are aware that some FHL owners have successfully negotiated a deferral of mortgage repayments, so we suggest that you talk to your lender about this possibility.
If you have any queries or concerns as an FHL owner, please do not hesitate to contact us.