Crofter Posted November 2, 2017 Share Posted November 2, 2017 As many of you will know, I'm (nearly finished!) building a small house as a furnished holiday let. I plan to have it let out for the 2018 season, with a gross income of around £10-£12k per year My original plan was simply to operate as a self employed sole trader, and I expected to pay no income tax once I had deducted the basic bills like laundry, electricity, etc etc. However i have gone and messed all this up by getting a job! So with all my personal allowance already used up, now I am rather keen to investigate how to operate the business without getting a big tax bill. I understand that I cannot offset the cost of the actual build, but I think I can claim certain portions of it. I'm not sure how much of each of these things I can offset in a given year, though. From what I've read up so far I think this may include: - the kitchen and appliances - the bathroom and fittings - the wood burning stove - light fittings - appliances such as the TV, hoover - furniture, kitchenware, linen - decorating costs Cheers Link to comment Share on other sites More sharing options...
ProDave Posted November 2, 2017 Share Posted November 2, 2017 What about SWMBO? what is her tax situation? Could she "run" the business if she pays no tax? or could it be jointly run? Link to comment Share on other sites More sharing options...
Jeremy Harris Posted November 2, 2017 Share Posted November 2, 2017 31 minutes ago, ProDave said: What about SWMBO? what is her tax situation? Could she "run" the business if she pays no tax? or could it be jointly run? Seems the obvious way around things. She will have her full tax free allowance, unless she already has a job that uses all of it up, so having her run the B&B seems to make a lot of sense. Not sure about offsetting the build cost as a part of the capital of setting up the business; it sounds like it should be OK, but I'm not at all well-versed in the rules. Link to comment Share on other sites More sharing options...
AliMcLeod Posted November 2, 2017 Share Posted November 2, 2017 (edited) Have you discounted setting up a limited company? It need not be as onerous as it sounds. I'm not sure what the tax status would be of getting a personal asset (the house) into the business (the business could purchase it from you at market rates, but with no assets, that may be something from the future - and you'd have to check how that impacts your personal tax circumstances. eg, capitals gains), or it could lease it from you (again though, this would be additional taxable income for you). You could set yourself and your wife up as shareholders in the company and you can both withdraw £5K dividends each year (less any other dividends you earn elsewhere). You can also pay yourself/wife a small salary too, if either of you are under the basic rate (or even upper rate) threshold in any one year. All income could then accrue in the business and you'd put expenses through the business too. Corporation tax would apply to profits each year. From the figures your talking about, you'd not hit the VAT threshold either. As always, however, best take professional advice. Edited November 2, 2017 by AliMcLeod Link to comment Share on other sites More sharing options...
Crofter Posted November 2, 2017 Author Share Posted November 2, 2017 Interesting ideas, thanks. I will definitely be speaking to account before making any decisions, but I like to be as well prepared as possible for these sorts of things. If I brought in another family member as a business partner, how much attention is paid to that? Would it get complicated if it was someone further removed than SWMBO (who has already used up all her allowance). Two sets of £5k dividends would almost certainly cover everything- I will look further into this approach. Link to comment Share on other sites More sharing options...
Crofter Posted November 2, 2017 Author Share Posted November 2, 2017 Hmmm, the significant downside to going with a ltd company is that corporation tax has to be paid (20%) before the dividends come out. So a lot of hassle for very little gain, if I'm understanding it correctly. I had assumed there would be some sort of allowance on CT to help smaller businesses, but it seems not. Link to comment Share on other sites More sharing options...
AliMcLeod Posted November 2, 2017 Share Posted November 2, 2017 (edited) 1 hour ago, Crofter said: Hmmm, the significant downside to going with a ltd company is that corporation tax has to be paid (20%) before the dividends come out. So a lot of hassle for very little gain, if I'm understanding it correctly. I had assumed there would be some sort of allowance on CT to help smaller businesses, but it seems not. Yes, should have made that clearer - dividends are paid from profits after corporation tax. But, it could be more tax efficient if you're both intending to stay in employment and you'll both be tax payers. Corporation tax is 19%. I'd put a spreadsheet together with both scenarios - expected income, expenses etc and see what comes out. Edited November 2, 2017 by AliMcLeod Link to comment Share on other sites More sharing options...
Crofter Posted November 2, 2017 Author Share Posted November 2, 2017 5 minutes ago, AliMcLeod said: Yes, should have made that clearer - dividends are paid from profits after corporation tax. But, it could be more tax efficient if you're both intending to stay in employment and you'll both be tax payers. Corporation tax is 19%. If we were higher rate tax payers it would be a big saving, but we're both on basic rate so probably not worth the trouble. Link to comment Share on other sites More sharing options...
Temp Posted November 3, 2017 Share Posted November 3, 2017 Seek professional advice as there are confusing VAT issues associated with new build holiday lets: This might also be of interest.. http://www.rossmartin.co.uk/sme-tax-news/418-vat-reclaim-opportunity-for-holiday-home-owners A recent decision by the VAT tribunal means that the VAT: DIY Housebuilders and Converters VAT Refund Scheme applies to holiday homes. However reclaiming VAT on building materials might have implication for VAT on the rental income... https://www.accountingweb.co.uk/any-answers/vat-reclaim-on-furnished-holiday-let Laura asked: "Lastly, are you saying that the letting income would be subject to standard rate VAT if they voluntarily register in order to reclaim VAT on material build costs?" Yes, in a word! and here.. https://www.taxation.co.uk/Articles/2015/06/23/333276/holiday-home One reply suggests the future sale of a holiday home could be liable to VAT. So if it's subject to a planning condition it would be well worth getting that removed before any future sale. Another suggests that (unlike a self build for your own use) you can also reclaim VAT on non-building materials as it's a holiday let. Given things have changed over time I would strongly recommend getting advice in writing. Link to comment Share on other sites More sharing options...
Temp Posted November 3, 2017 Share Posted November 3, 2017 Regarding VAT on the sale of a holiday let.. I expect you plan to hang onto the place but I've just found this which says it's zero rated if sold after three years, standard rated if sold before.. https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst03410 Link to comment Share on other sites More sharing options...
bassanclan Posted November 3, 2017 Share Posted November 3, 2017 I would anticipate that there will be a lot of damages on a holiday let, I suspect that you will need a new to buy a new kitchen and a new bathroom, you might need new carpet, to redecorate etc all these costs will reduce the profits. If you have a receipt use it! Link to comment Share on other sites More sharing options...
Temp Posted November 3, 2017 Share Posted November 3, 2017 Quite a bit of info here.. https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2015 Google "tax treatment of holiday lets" Link to comment Share on other sites More sharing options...
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