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Where Taxpayers and Advisers Meet

VAT on shared FHL portfolio

xenium
Posts: 4
Joined: Tue Nov 29, 2016 12:45 pm

VAT on shared FHL portfolio

Postby xenium » Mon Jul 15, 2019 10:11 pm

I'm considering a small portfolio of rental properties:
1. some are in joint ownership
2. some qualify as FHL
3. some do not qualify as FHL but receive some rent from short lets (31 days or less)

Question: what portion of rental income is used to determine potential vat threshold?
a) ownership % of all of the income from properties that qualify as FHL
b) ownership % of all short let income regardless of FHL status
c) the "short let business" rental income, regardless of ownership split or property status.
d) if running an estate agency model, only the income from managing the properties, with landlords being paid a non-vatable guaranted rent according their ownership %
e) something else?

Thank you for your views.

robbob
Posts: 2827
Joined: Wed Aug 06, 2008 4:01 pm

Re: VAT on shared FHL portfolio

Postby robbob » Tue Jul 16, 2019 8:08 am

Each separate legal entity is normally treated on its own merits unless artificial separation comes into play (possible here potentially i guess) - note non FHL would be grouped with FHL for a sole owner (or partnership) but any residential letting would be exempt for vat purposes and ignored when calculating turnover for vat registration- this may cause partial exemption/flat rate issues if vat registered though so always factor in where the exempt income technically speaking too legally spekaing.

so normally a sole ownership will be separate and distinct from a multiple ownership situation(partnership?) by default and that would be separate from a limited company. for limited company even if the owners are the same as a sole trader or partnership the default is that it is a different legal entity from both sole traders and partnerships.

It may be worth posting the different ownership splits as ABCDE etc

you do raise an interesting point if there are multiple properties owned by the same people but slightly different ownership structure - eg AB own property 1 AB own property 2 and BC own property 3 - not a situation i have looked at before so perhaps someone else will comment in that regard,


If you are managing agent then in principle if its clear and obvious from the arrangements that the rental income is not yours then it would only be the management fees that would be your income.

Note the business structures may end up looking like artificial separation structures if little to no vat is paid even if this is done for other obvious commercial reasons probably worth doing further research and taking specific advise in that regard clear separation of all the different legal entities is a must - but there is never any certainty that hmrc will not be able to challenge the structure if an artificially low amount of vat is paid.

Finally don't forget the implications of reverse charge service paid out being added to turnover for vat registration! - potentially expenses paid to overseas companies providing online type services not charging vat may need to be added to turnover - from memory i think airbnb now charge vat if you are not vat registered and only apply reverse charge if you are vat registered but a google /facebook/adobe or similar payment could up your turnover for vat purposes !

xenium
Posts: 4
Joined: Tue Nov 29, 2016 12:45 pm

Re: VAT on shared FHL portfolio

Postby xenium » Tue Jul 16, 2019 12:07 pm

Many thanks for your input, that's very helpful.

robbob: "
you do raise an interesting point if there are multiple properties owned by the same people but slightly different ownership structure - eg AB own property 1 AB own property 2 and BC own property 3 - not a situation i have looked at before so perhaps someone else will comment in that regard
"

Yes this is the case.

A solely owns properties 1-5
ABC jointly own properties 6-9

Properties 2-9 are let primarily via a single Airbnb account, or other channels offering the same set of properties.

A manages and collects all rental proceeds.

robbob: "
If you are managing agent then in principle if its clear and obvious from the arrangements that the rental income is not yours then it would only be the management fees that would be your income.
"

Effectively A is the managing agent of the properties, which A owns a share of (as indicated above). A would like to clearly separate the income he receives as a managing agent, from the income he receives as a landlord. This is in part to maintain harmonious relations with all parties, but also as in due course he would like to handover his role as managing agent, either to another owner, or to a 3rd party.

* * *

Returning to the original question, here is a an example of (a) and (b) for sole owner only:

Property 2 qualifies as FHL and earns say £2000 from lets longer than 31 days and £8000 from lets 31 days or less
Property 3 does not qualify as FHL (*) and earns say £3000 from lets longer than 31 days and £6000 from lets 31 days or less
(*) failing pattern of occupation condition

i) Total rent from short lets is £8000+£6000 = £14000
ii) Total rent from properties that qualify as FHL is £2000 + £8000 = £10000

Which figure is used in determining VATable income for the sole owner?

For HMRC self assessment there are separate boxes for FHL and non-FHL. For the FHL box, is HMRC expecting figure (i) or (ii) and does the VAT department expect the same split? Or are there other possible splits?

Sorry in advance if I'm missing some basics (I'm not an accounting/tax professional)

Thanks again for your views.

robbob
Posts: 2827
Joined: Wed Aug 06, 2008 4:01 pm

Re: VAT on shared FHL portfolio

Postby robbob » Wed Jul 17, 2019 9:15 am

Property 2 qualifies as FHL and earns say £2000 from lets longer than 31 days and £8000 from lets 31 days or less
Property 3 does not qualify as FHL (*) and earns say £3000 from lets longer than 31 days and £6000 from lets 31 days or less
(*) failing pattern of occupation condition
i) Total rent from short lets is £8000+£6000 = £14000
ii) Total rent from properties that qualify as FHL is £2000 + £8000 = £10000
Which figure is used in determining VATable income for the sole owner?
Its not really something i have looked into in detail before so take these comments with a pinch of salt.

Notice 709/3 section 5 lays out the basics and exceptions available with regard to holiday homes.

https://www.gov.uk/guidance/hotels-holiday-accommodation-and-vat-notice-7093#section5

The main exception to standard rating that section 709 mentioned is as follows.
5.6 Off-season letting
If you let your holiday accommodation during the off-season, you should treat your supply as exempt from VAT provided it is let as residential accommodation for more than 28 days and holiday trade in the area is clearly seasonal.
Note you should solely concentrate on specific vat advise in the regard relating to "holiday homes" and completely ignore rules for income tax when making a vat decision- accommodation may fail for one and pass for the other or vice versa.

My take on this is that if it is being advertised as being holiday accommodation then its standard rated UNLESS it meets the specific advise set out in section 5.6. i would recommend checking that section 5.6 is unchanged periodically too as i don't know if tat advise matches exactly what is in the legislation (VATA 1994, Sch. 9, Grp. 1 i think)

This being the case i don't think you have provided the relevant information so your question can be answered but hopefully its guiding you in the right direction.

Hopefully one of the vat specialists will chip in if i have missed anything relevant - it always gets a bit messy when the rules allow one to move from one vat treatment to a different vat treatment by a very small difference in the detail of the arrangements and how the interact with how hmrc interprets the legislation.

do i live is a seasonal holiday resort - i don't know - it may be seasonal it may not be - it may not even be a resort anymore and i have been living here for enough years to know - and i suspect the answer may have changed in that time too for worse - worser and then slightly less worser :)

xenium
Posts: 4
Joined: Tue Nov 29, 2016 12:45 pm

Re: VAT on shared FHL portfolio

Postby xenium » Fri Jul 19, 2019 6:26 pm

Thank you again for your views, that's very helpful.

I have met with a couple of accountants now and am starting to see what a complex business this is. I understand now how the income tax view is a completely different perspective to the VAT view, and there may or may not be some conflict between the two. I also now understand that a key part to any interpretation is the intention of the business one way or another, which may be partly evidenced by the way in which the business is run (how lettings are advertised etc)

I will post some more updates here in due course, but no doubt the legislation will also evolve as the short let market is growing rapidly with the likes of Airbnb etc.

Thanks again for your help.


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