To qualify as trading businesses under the Furnished Holiday Let (FHL) tax rules, a property must be available for let for 210 days and actually let for 105 days.
The following measures are UK-wide:
Tax deferrals and bank finance support are measures to address cashflow. All tourism businesses are going to take a hit to profit this year – indeed most will most likely make losses. Regardless of the profit impact, what is key right at this moment is to have cash available to you.
For VAT registered businesses, there is an automatic offer to defer VAT payments during the period 20 March to 30 June until the end of the 2020/21 tax year. Whilst this is commendable, most VAT registered FHL businesses probably don’t need that as they will not have much if any VAT payable, because of closures and loss of activity / income.
In terms of income tax, the date for the second payment on account is moved from 31 July 2020 to 31 January 2021. That’s a help, as that payment on account relates to the 2019/20 year for which income tax may well still be payable. You could consider the appropriateness of the first payment on account that has already been paid on 31 January 2020. Should it be reduced to achieve a tax refund?
Where PAYE or corporation tax liabilities apply, consider applying to HMRC for more time to pay in order to assist your cashflow.
As far as bank support is concerned, debt is still debt whether coronavirus connected or not. The Government is providing a level of guarantee to the bank against you going bust in order to encourage the banks to provide finance at this time. Whilst it is a good government policy, assuming you don’t intend to, or indeed, go bust then you’ll have to pay the debt back.
It is always better to cut costs than debt financing them. In addition, if you don’t bank with one of the main UK banks then accessing the CBILS may be difficult to achieve.
There isn’t much you can do about premises costs. Changeover costs will reduce automatically in line with the reduction in the number of visitors. That leaves wages, and the CJRS is designed to help you with them.
We have been offered the opportunity to ‘furlough’: sending your employees home with them being prohibited from working. In exchange, the Government has agreed to pay a grant to you to cover 80% of their wage cost up to a capped limit which is unlikely to be breached for FHL business employees. If the employee will agree to take a 20% wage cut, the grant funding will match the wages cost and you just have a cashflow issue funding any time delay in receiving the grant.
The important thing to understand is that being able to furlough an employee is an employment law matter. The employee needs to agree to vary their employment contract. You can’t just cut their wages. The key advice is to speak to an employment lawyer in order to protect yourself against a future claim. Unsurprisingly, employment lawyers are very busy.
If you are trading through a limited company and taking a low salary then accessing the CJRS personally is likely to be difficult. You can’t work when furloughed and so it is hard to see how a director/shareholder can satisfy that requirement. Further, 80% of a low salary is not very much. If you are trading through a limited company and not taking salary, you will not be able to access CJRS. Instead, you might need to consider a Universal Credit application.
The SEISS is available to the self-employed or a partner of a trading partnership. Your self-employed trading profits must be less than £50,000 and more than half of your taxable income. This scheme is designed to mimic the CJRS. Are you eligible for this personal funding? In other words, are you self-employed for these purposes? The answer is most likely you’re not.
The issue here is that this scheme appears to be designed to take the information from the trading pages of self-assessment tax returns and not the FHL boxes on the property pages. The position isn’t completely clear as limited detail is available but there was an apparent linkage to national insurance payments and this scheme in Rishi Sunak’s announcement of it. This may irritate you if you don’t qualify since the Government has closed your business and taken away your livelihood. It’s entirely possible that the position of FHL business owners has just not been considered. If you don’t qualify then once again, you should consider applying for Universal Credit.
Business rates are a significant cost to any property-based business. To help owners of business properties deal with the impact of Coronavirus, a number of different measures are to be implemented to provide a business rates holiday for most as well as much-needed cash injections via grants.
Retail, hospitality and leisure businesses will get 100% rates relief provided the property is occupied (an active business). Properties that have closed temporarily due to the government’s Coronavirus advice will be treated as occupied. The relief will automatically be applied to your bill by your local council, leading to no business rates payable for the next year.
Any business with a rateable value of between £18,001 and up to £50,999 will be able to apply for a one-off grant of £25,000. These grants apply to caravans and self-catering accommodation that are a primary income for the ratepayer (one third or more) and are let out for 140 days or more in 2019/20.
A one-off grant of £10,000 will also be available to small businesses who get small business bonus scheme relief or rural rate relief. Again, you must evidence that it is a primary income for the ratepayer (one third or more) and is let out for 140 days or more in 2019/20. You can only apply for one grant, even if you own multiple properties. These grants can be accessed via a form on your local council website.
Since 6 April 2017, Scottish taxpayers have a separate income tax rate to the UK on furnished holiday letting income. However, they will also get to benefit from the deferral of the second payment on account due 31 July 2020, alongside other UK taxpayers.
If the shut-downs continue then further help may have to follow. At the moment it is key to access the help available as cash flow will be vital over the coming months.
As well as assistance with the new Coronavirus support packages, there may be untapped tax relief for capital allowances on fixtures (e.g. heating systems, lighting, electrics, fitted kitchens and bathrooms) and furniture in your property which would lead to a tax refund and further tax relief in the future. Such opportunities may be particularly relevant when cash flow is so tight.
A couple of final points on the impact of Covid 19 which are independent of the Government’s relief schemes:
Once again, these are points on which lobbying of the government should be considered once we get beyond the immediate crisis.
Thanks to John Endacott and Heather Britton at PKF Francis Clark for this advice.