Furnished Holiday Lets and the VAT Implications
For a property to qualify as a Furnished Holiday Let (FHL) there must be ‘sufficient’ furniture for normal occupation. There are also several letting conditions that must be met:
- The property must be in UK or EEA (European Economic Area)
- The property must be commercially let
- The property must be made available for 210 days in the year
- The property must be let for at least 105 days (15 weeks) in the year
- Each stay must not exceed 31 days
Period of grace election
In the case of unforeseen circumstances, where there is a genuine intention to meet the letting conditions, but they are not met, a period of grace election can be used. To qualify for an election, the property must have:
- Be made available for 210 days in a year
- Active steps were taken to let the property (such as advertising & marketing);
- And not used for another purpose
Use of the period of grace election requires that you meet the actual letting requirement at least one tax year out of every three tax years.
Standard VAT rules apply regarding the registration turnover threshold. An FHL business must register for VAT when revenue exceeds £85,000. As per VAT Notice 709/3, holiday homes are a standard rated supply. If the FHL business is VAT registered it must apply VAT to its sales.
An FHL business can reclaim VAT on goods and services purchased in relation to the business. Purchases with an element of private use, must only recover the proportion related to the business use.
Output VAT: Agent-Principal relationship
Often an FHL business will use an agency to advertise the property and n most cases, this is a disclosed agent relationship.
This means that the end consumer is aware that they are dealing with an agent who is working on behalf of the principal (the FHL business). For the purposes of VAT, the taxable supply is made by the principal. This means that the disclosed agent will not apply VAT to the sale, so the principal must account for the output VAT.
Frequently the end consumer will pay an initial deposit and a later date a balancing payment. Receipt of each of these represent two separate supplies, and output VAT must be applied separately to both payments when received.