Why some furnished holiday lets are still letting – FHL

People are wondering why holiday lets are open to the public when they should not be, apart from for key workers. It is considered socially irresponsible. I agree. I have holiday lets (and mine are closed btw) but I still have many costs to pay for with (currently, and for the short-medium term future) zero income from the business.
Here’s some of the explanation – there is no self-employed income help for people letting holiday accommodation. So, while the rest of the population is receiving help, we are not, apart from the helpful £10k SBRR grants (saving many of us from imminent collapse). £10k sounds a lot but please read on because some businesses could lose most of that in cancellations.
For holiday letting businesses which are closed, current income is zero, with many people requesting refunds, which takes them into negatives.
I firmly believe that if this was addressed, the rogue holiday letting businesses would close their doors to tourists for the present. If holiday letting businesses go down the pan, there is a massive knock on effect on tourism, including all the other businesses relying upon it, such as pubs and restaurants.
People struggle to live on zero income. OK, property owners have loads of property,you may say but if it is empty, it is a cost centre (council tax, insurance, maintenance, and in many cases, business loans or mortgages, etc) not an income generator.
If anyone is affected – or cares – then emails to your MP would be good. Feel free to use this information in the article.
 This is how the situation currently lies:
Self-employed professional self-caterers, who derive most of their income from holiday lets do not qualify for any of the income assistance programmes being offered by the Government, because of a technicality on the Income Tax Return.
At a time when the Government has (rightly) closed holiday letting down to stop the spread of Covid-19, business owners are reduced to zero income, and at the same time are also facing a barrage of guest requests for refunds, which many simply cannot meet.

Furnished Holiday Lettings occupy a special niche in the tax world, and – subject to meeting the FHL criteria https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self- assessment-helpsheet/hs253-furnished-holiday-lettings-2018 – are regarded as trading businesses for tax purposes.

As such, unlike Residential Property, FHL income is subject to VAT and business rates.

From an income tax return perspective, however, importantly, FHL income is reported under “Property – FHL (Furnished Holiday Let) Income”, and as such is not classified by HMRC as a self-employment, but is considered to be property income. For that reason, “self-employed” self-catering operators will NOT benefit from the assistance for the self-employed under the current Government scheme.

While the Government  will rightly want to avoid paying assistance to second home owners and casual operators who do not derive their main income from self-catering, there are many unincorporated professional self-catering operators whose sole income is the operation of their FHL businesses. It should be possible within the HMRC system to include FHL income where it meets the same criteria as those applied to the assistance for self-employment, namely:
*Your self-employed trading profits must also be less than £50,000 and more than half of your income come from self-employment.
This is determined by at least one of the following conditions
being true:
  • having trading profits/partnership trading profits in 2018-19 of less than £50,000 and these
    profits constitute more than half of your total taxable income
  • having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and
    these profits constitute more than half of your average taxable income in the same period
  • if you started trading between 2016-19, HMRC will only use those years for which you filed a Self-Assessment tax return.
Without even taking into account the financial impact of the spectre of having to reimburse existing bookings, or move them into future periods (with all the implications that carries for future cash flow), the total absence of any current income from the usual flow of balances due and new bookings means that self-catering operators in this position are facing significant financial hardship currently, but are unable to access any of the assistance packages being offered by Government (with the exception of the SBRR grants, where applicable).

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