Are you a UK non-resident and do you own a furnished holiday property in the UK which you let out? If so, then please read on.

From the 1 December 2012, the VAT registration threshold for non-established taxable persons (NETPs) was removed. NETPs are therefore required to register for UK VAT when they make their first supply of goods or services, which includes the letting of furnished holiday accommodation.

Prior to this date, NETPs were treated the same as a UK established business and therefore had to VAT register when their UK taxable turnover exceeded the registration threshold. The removal of the VAT registration threshold for NETPs brings UK law in line with other EU member states.

Who does it affect?

All NETPs who are not already VAT registered and trading in the UK, or intending to trade in the UK, as these businesses now need to register for VAT in the UK immediately that they make a supply of goods or services. The window for registering for VAT with HMRC is the normal 30 days and so any NETP should apply to register for VAT within 30 days of making their first supply in the UK.

What this means for you

A non-resident landowner letting furnished holiday accommodation in the UK, for however short a period, is affected by the removal of the registration threshold and would therefore need to register for VAT. The letting income will then be treated as VAT inclusive or you would have to increase the rental by 20%. On the other hand, the property owner will be able to recover VAT on any related expenditure.

The use of a UK letting agent, however, creates a UK based establishment for VAT purposes. This means that the standard registration threshold (currently £79,000) would apply and registration would therefore only be compulsory once that threshold has been exceeded in any given 12 month period.

Conclusion

In order to avoid having to register for VAT you may want to consider appointing a UK letting agent. You will, of course, have to pay for their services but that may be less than handing over potentially a sixth of your turnover to HMRC in VAT.

Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.

We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2013. code: NTD146 exp: 31/03/14