If you are running your holiday home as a business and generate a high volume of bookings throughout the year, it is quite likely that you will be subject to paying business rates rather than council tax. In this article, we discuss holiday let business rates and how they affect holiday home owners.
What are business rates?
Business rates are a type of tax, paid on non-domestic properties, such as shops, offices and holiday homes.
The rules for holiday let business rates
Once your holiday let accommodation officially becomes a Furnished Holiday Let, it is mandatory to register for business rates. This means that holiday home owners don’t have an option, they have to switch from council tax to business rates.
According to HMRC:
“If your property is in England and available to let for 140 days or more per year, it will be rated as a self-catering property and valued for business rates.”
“If your property is in Wales and both available to let for 140 days or more per year and actually let for 70 days, it will be rated as a self-catering property and valued for business rates.”
The full details of Furnished Holiday Let criteria and business rate stipulations can be found on HMRC’s website.
How business rates are calculated
Business rates vary from property to property. The amount payable is dependent on your property’s ‘rateable value’. This amount is calculated by the Valuation Office Agency, part of HMRC. Home owners can find out their property’s rateable value via HMRC’s website.
There are certain factors that will affect your holiday let business rates. For example, the property’s size, its location, its annual turnover and how many people it can accommodate. Roughly speaking, the bigger and more successful your holiday homes business is, the higher the rateable value.
Home owners can estimate their business rates online. According to HMRC, you can calculate your business rates estimate by, ‘multiplying the rateable value by the correct ‘multiplier’ (an amount set by central government).’
Small business relief
Some properties are eligible for tax reliefs, specifically small business rates relief. You can apply for small business rates relief if your rateable value is calculated to be less than £15,000.
If your property’s rateable value is less than £12,000, you will be completely exempt from paying business rates. For rateable values between £12,000 and £15,000, your business rates will be reduced from 100% to 0%.
To put this into context, at the time of writing (March 2019), a typical 2-bedroom cottage in the Cotswolds will most likely have a rateable value below the £12,000 limit and so its business rates will probably be nil. However, a 6-bedroom detached, country home generating letting income in excess of £80,000 per annum will likely have a rateable value over £15,000 and so will probably pay business rates at a level higher than they would have if they just paid council tax.
You may also be able to benefit from small business relief if you have two properties. This will depend on the properties’ separate and combined rateable values.
Keep in mind that if your property is subject to business rates, you will no longer be required to pay council tax – this can be beneficial as business rates can work out cheaper than council tax!
However, when you stop paying council tax, the council will stop collecting your refuse, and so you will need to make plans for private waste collection.
The information contained in this article is accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time and so please speak to one of our Consultants to confirm the most accurate up to date information. Nothing in this article constitutes financial advice. Please always consult your accountant or solicitor for all financial, taxation or legal matters. Your home may be repossessed if you do not keep up repayments on your mortgage. Pure holiday let, buy to let and commercial mortgages are not regulated by the FCA.