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Tax for your Holiday Cottage

Tax treatment for holiday cottages

Tax rules and regulations can be confusing at the best of times and are constantly being updated.  We would therefore strongly suggest that you contact the Inland Revenue or an accountant if you are setting up a new self catering holiday cottage business.  This will allow you to make sure you are fully informed of all the latest advice to ensure you make the right decisions and keep the correct records for your self catering accommodation business.  We have set out some of the key areas below but please note you must not rely on any of the information provided and you should always check on the legal, tax or regulatory positions yourself.

Furnished Holiday Let for UK tax purposes

Being deemed to be a Furnished Holiday Let for tax purposes can bring certain advantages so it is worth ensuring that you satisfy the criteria – these criteria are changing from April 2012 and are as follows:

  • Your holiday cottage is to be available to let for an annual minimum of 210 days  (increased from 140 days)
  • Your holiday cottage is to be let for an annual minimum of 105 days (increased from 70 days)
  • Individual lets should not be more than 31 consecutive days and your holiday cottage must not be let to the same person for more than 31 days in a year

However there is a grace period of one/two years whereby owners of self catering cottages who are struggling to meet this criteria can elect to continue to qualify for the Furnished Holiday Let tax treatment.  It is also very important that you keep full records of both your income and expenditure and these need to be kept for six years.

Income and expenses

If your self catering cottage meets the Furnished Holiday Letting criteria you are able to deduct allowable expenses from your rental income.  These deductable expenses include

  • Maintenance and repair costs
  • Cleaning and gardening costs
  • Council tax
  • Utility bills
  • Interest on the mortgage
  • Costs of advertising and administration of the business
  • Buildings and contents insurance
  • Legal and accounting fees
  • Capital allowances for cost of furniture and other capital items (this is generally the entire cost of your capital expenditure as long as the total expenditure in any one year is below £100,000

If you may a loss in any one year you are able (from April 2011) to carry this loss forward and offset it against any future profits arising from the self catering business.  Any profits you make will need to be declared under your self assessment

VAT for holiday cottages

Depending on the size of your self catering cottage business, you may be required to charge VAT on your rentals.  This will depend on the total of your rental income over a year.  If this amount is greater than £73,000 then you will be required to register for VAT and then have to charge VAT on your rentals (currently 20%) but you can reclaim any VAT paid on your expenses.  Again the rules, regulations and rates for VAT are constantly changing and there are schemes for smaller business that may be applicable so we would strongly recommend you seek advice from your tax office or an accountant.

Dorset Holiday Cottages

Dorset Holiday Cottages is a leading provider of self catering holiday cottage accommodation across Dorset.  Our range of properties provide all types of self catering accommodation and holiday cottages across Dorset and the majority are quality assured by the English Tourist Board

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