Quick sole trader VAT question
Discussion
This one is from a mate of mine.
He is a sole trader registered for VAT and pays income tax through self assessment and VAT through usual VAT returns. He does something I don't undrrstand with computers.
He started renting out a bungalow as a furnished holiday let, the income from which will appear on their annual self assessment.
Holiday lettings are supposed to charge VAT if they are above the VAT, this one isn't, his sales from it are about £25K per year.
However his sole trader activities plus lettings amount to about £130K.
Should he be paying VAT on his holiday let revenue?
My thinking is yes as they all relate to his trading activities and it is him who is VAT registered.
His sales from his computer activities are B to B so nobody cares about VAT and he can claim VAT back but on the bungalow, his sales are to couples going on holiday and they can't claim back VAT and his VAT reclaim on that will be minimal.
Moving forward, maybe his best option is to give the holiday let to his partner or someone who isn't VAT registered or maybe set his main work up as an LTD or the holiday let as an LTD although the admin of that for a £25K revenue seems not worhwhile.
So the question is - Should he be paying VAT on the holiday let and what's the best way forward?
He is a sole trader registered for VAT and pays income tax through self assessment and VAT through usual VAT returns. He does something I don't undrrstand with computers.
He started renting out a bungalow as a furnished holiday let, the income from which will appear on their annual self assessment.
Holiday lettings are supposed to charge VAT if they are above the VAT, this one isn't, his sales from it are about £25K per year.
However his sole trader activities plus lettings amount to about £130K.
Should he be paying VAT on his holiday let revenue?
My thinking is yes as they all relate to his trading activities and it is him who is VAT registered.
His sales from his computer activities are B to B so nobody cares about VAT and he can claim VAT back but on the bungalow, his sales are to couples going on holiday and they can't claim back VAT and his VAT reclaim on that will be minimal.
Moving forward, maybe his best option is to give the holiday let to his partner or someone who isn't VAT registered or maybe set his main work up as an LTD or the holiday let as an LTD although the admin of that for a £25K revenue seems not worhwhile.
So the question is - Should he be paying VAT on the holiday let and what's the best way forward?
Pistom said:
This one is from a mate of mine.
He is a sole trader registered for VAT and pays income tax through self assessment and VAT through usual VAT returns. He does something I don't undrrstand with computers.
He started renting out a bungalow as a furnished holiday let, the income from which will appear on their annual self assessment.
Holiday lettings are supposed to charge VAT if they are above the VAT, this one isn't, his sales from it are about £25K per year.
However his sole trader activities plus lettings amount to about £130K.
Should he be paying VAT on his holiday let revenue?
My thinking is yes as they all relate to his trading activities and it is him who is VAT registered.
His sales from his computer activities are B to B so nobody cares about VAT and he can claim VAT back but on the bungalow, his sales are to couples going on holiday and they can't claim back VAT and his VAT reclaim on that will be minimal.
Moving forward, maybe his best option is to give the holiday let to his partner or someone who isn't VAT registered or maybe set his main work up as an LTD or the holiday let as an LTD although the admin of that for a £25K revenue seems not worhwhile.
So the question is - Should he be paying VAT on the holiday let and what's the best way forward?
Yes if the trade in holiday lettings is in the same name as his computer activities. He is a sole trader registered for VAT and pays income tax through self assessment and VAT through usual VAT returns. He does something I don't undrrstand with computers.
He started renting out a bungalow as a furnished holiday let, the income from which will appear on their annual self assessment.
Holiday lettings are supposed to charge VAT if they are above the VAT, this one isn't, his sales from it are about £25K per year.
However his sole trader activities plus lettings amount to about £130K.
Should he be paying VAT on his holiday let revenue?
My thinking is yes as they all relate to his trading activities and it is him who is VAT registered.
His sales from his computer activities are B to B so nobody cares about VAT and he can claim VAT back but on the bungalow, his sales are to couples going on holiday and they can't claim back VAT and his VAT reclaim on that will be minimal.
Moving forward, maybe his best option is to give the holiday let to his partner or someone who isn't VAT registered or maybe set his main work up as an LTD or the holiday let as an LTD although the admin of that for a £25K revenue seems not worhwhile.
So the question is - Should he be paying VAT on the holiday let and what's the best way forward?
Needs to speak to an accountant about the past but going forward he needs to put one of his activities into another legal entity such as a partnership or a limited company.
Simple answer, yes. He is VAT registered as an individual. Any trading activity he carries out, even if they are different businesses, need to collect VAT.
If he wants the two businesses to be treated differently, he would need to put one of them into a different legal entity, such as a limited company. Even then, HMRC can try to re-amalgamate them for VAT purposes (called aggregation).
If he wants the two businesses to be treated differently, he would need to put one of them into a different legal entity, such as a limited company. Even then, HMRC can try to re-amalgamate them for VAT purposes (called aggregation).
janesmith1950 said:
He probably in for a bit of pain if he's been charging out £25k and wrongly failing to charge VAT on it.
You would have thought his accountant would have highlighted this before now. I suspect he hasn't actually sold £25K of lettings but it was budgeted to do so before the C19 came along. He should be able to fix this and possibly have a word with his accountant who might soon be looking for another client!Eric Mc said:
Simple answer, yes. He is VAT registered as an individual. Any trading activity he carries out, even if they are different businesses, need to collect VAT.
If he wants the two businesses to be treated differently, he would need to put one of them into a different legal entity, such as a limited company. Even then, HMRC can try to re-amalgamate them for VAT purposes (called aggregation).
Does letting a property have to be classed as a business Eric?If he wants the two businesses to be treated differently, he would need to put one of them into a different legal entity, such as a limited company. Even then, HMRC can try to re-amalgamate them for VAT purposes (called aggregation).
I mean, is there a scenario where if could just be classed as income from other sources & not part of a sole trader operation (assuming no expenses are put through the latter)?
Smiler. said:
Eric Mc said:
Simple answer, yes. He is VAT registered as an individual. Any trading activity he carries out, even if they are different businesses, need to collect VAT.
If he wants the two businesses to be treated differently, he would need to put one of them into a different legal entity, such as a limited company. Even then, HMRC can try to re-amalgamate them for VAT purposes (called aggregation).
Does letting a property have to be classed as a business Eric?If he wants the two businesses to be treated differently, he would need to put one of them into a different legal entity, such as a limited company. Even then, HMRC can try to re-amalgamate them for VAT purposes (called aggregation).
I mean, is there a scenario where if could just be classed as income from other sources & not part of a sole trader operation (assuming no expenses are put through the latter)?
If it was a single BTL, there is no VAT on that so that would be OK as income with no VAT relevant.
Happy to be corrected.
Holiday letting a is business - similar to running a hotel or a guest house. Therefore it counts as a trading activity and will be subject to VAT if the gross income exceeds the VAT turnover threshold.
Income derived from letting a residential property is not a trading activity and is normally outside the scope for VAT.
Income derived from letting a residential property is not a trading activity and is normally outside the scope for VAT.
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