The recent coronavirus outbreak has brought with it an unprecedented amount of uncertainty for holiday cottage owners but there are reassuring steps you can take to minimise the effect on your livelihood. The government has announced measures to help businesses who are affected by the coronavirus outbreak as our guest blog writer John Endacott from PKF Francis Clark outlines below.
The Government has introduced an unprecedented series of measures to help businesses cope with Covid 19. Whilst these measures are certainly generous in total, they are something of a patchwork of tax cuts and grants and so different businesses will benefit in different ways.
As owners of furnished holiday lets (FHLs) have a complicated tax status, the impact of the different measures varies significantly from one business to another. Owners of FHLs therefore need to carefully consider their own position and which support to access.
The key support measures are as follows:
- Tax payment deferral
- Access to bank finance through the Coronavirus Business Interruption Loan Scheme (CBILS)
- A Coronavirus Job Retention Scheme (CJRS)
- Business rates holiday
- Grant support connected to business rates status
- Income support for some owners through the Self-Employed Income Support Scheme (SEISS)
There is detailed information on these schemes and links to the government websites on the dedicated page on the PKF Francis Clark website at https://www.pkf-francisclark.co.uk/coronavirus-updates/. What is set out below are my personal thoughts on how this applies to FHLs and what you should be thinking about.
TAX PAYMENT DEFERRAL
First, let’s start with tax deferrals and bank finance support. These measures are about 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. That’s great but most VAT registered FHL businesses probably don’t need that as I doubt they’ll have much if any VAT payable anyway because of closures.
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. Please still 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, you ought to consider applying to HMRC for more time to pay in order to assist your cashflow.
CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME
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. That’s a good government policy but assuming you don’t intend to, or indeed, go bust then you’ll have to pay the debt back. Spoken as the true accountant that I am, cutting costs is better than debt financing them. Also, if you don’t bank with one of the main UK banks then accessing the CBILS may be difficult to achieve in any event.
CORONAVIRUS JOB RETENTION SCHEME
So what costs can be cut? There isn’t much you can do about premises costs. Changeover costs should 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. What we have is the new concept of ‘furloughing’. Broadly, 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.
Many of you will already have learnt plenty about furloughing in the last week or so but the key 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, the 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 very 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 number is still a low number. Instead, you might need to consider a Universal Credit application.
BUSINESS RATES
For those businesses paying business rates then there is a 12 month business rates holiday for 2020/21 for all retail, hospitality and leisure businesses in England. Most businesses would already have come within small business rates relief (or possibly rural rates relief) and so this isn’t much of a help for them but is beneficial for larger businesses such as holiday letting complexes. For those paying council tax, there is no relief scheme and the liability will still apply.
GRANT SUPPORT
In addition to the business rates holiday, there is also grant funding available for retail, hospitality and leisure businesses of:
- £25,000 if your rateable value is between £15,000 and £51,000, or
- £10,000 if your rateable value is below £15,000
These grants are very welcome and should help support the sector but you’ll have to wait for the money to come through – so again, cashflow matters. Further, there is a restriction for personal use which may prevent a number of businesses qualifying. It is not clear whether there will be an allowance for a de-minimis level of personal use.
SELF-EMPLOYED INCOME SUPPORT SCHEME
The final scheme to consider is the SEISS. 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, and if so, you may want to make a representation to your MP about this. 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.
AND FINALLY
A couple of final points on the impact of Covid-19 which are independent of the Government’s relief schemes:
- Day count limits – many FHLs will not achieve the qualifying day counts this year and so have to rely upon the period of grace election. That should be okay unless you didn’t qualify last year. It could also be a problem next year if bookings don’t recover quickly. If the current crisis continues, will the FHL meet the requirement to be available for letting for at least 210 days in the tax year?
- Loss relief – Following the changes introduced in April 2011, FHL loss relief is very restricted compared to the position for trades. That could be a big problem for some businesses
Once again, these are points on which lobbying of the government should be considered once we get beyond the immediate crisis.
This guest blog post has been written by John Endacott, Head of Tax for PKF Francis Clark.
For more information about holiday home tax visit https://www.pkf-francisclark.co.uk/
