Caravan and Holiday Lodge Sub-Letting Income

Normally, losses relating to furnished lettings are carried forward and set against future profits. However, in the majority of cases, Capital Allowances may be offset against your general income of the same year. These are in cases where the rules normally applicable only to furnished holiday lettings can be satisfied:-

1. the caravan is available for letting to the public at a realistic level of commercial rent for 140 days or more, and
2. is actually let in this way for at least 70 days and
3. is let at a realistic rate that is likely to generate a profit.

If you can satisfy these basic requirements, are a UK resident and pay income tax on your other income e.g. under PAYE, on a private pension, self-employed, etc. then you could reasonably expect the following levels of income tax repayment after the first full year that you let a caravan or holiday lodge costing say £35,000:-

Basic-rate taxpayer (2008/09)

£1,300

Higher-rate taxpayer

£2,600

Slightly lower levels of refund are claimable in years 2, 3 and so on - although a higher level is reinstated for the year in which you decide to upgrade.

It all changed in October, 2004 and the following now applies:-

In October, 2004, the Inland Revenue's Special Compliance Office (as it then was) completed a detailed and extensive review of the tax treatment of caravan letting income in general and the way in which relief for losses may be claimed in particular. This was partly to ensure consistent treatment of such cases across all tax districts and partly to prevent the rules relating to furnished holiday letting income being stretched beyond what the Department considered that the original legislation had intended.

The main points arising from this review can be summarised as follows:-

1. Treatment as furnished holiday lettings (as opposed to furnished lettings) will only be accepted in exceptional circumstances e.g. at least four caravans owned. The Revenue is also insisting on the production of a business plan that has been prepared in advance of the lettings activities being commenced, if FHL treatment is to be claimed.
2. Losses can only be offset against general income in so far as they relate to Capital Allowances. Other losses must be carried forward for relief against future profits from the same letting activity.
3. Accounts must be prepared strictly in accordance with the recorded ownership of the caravan and profits/losses split equally between the parties. (Under Furnished Holiday Let Rules this did not apply and there was a choice as to apportionment). Clearly this has an impact where one or more joint-owners is a non-taxpayer.
4. Private use adjustments must have strict regard to the actual number of days that the Caravan Park advertises availability for caravans to be let out to the general public.

Introduction

If you receive income from which tax has not been deducted at source, there is a duty to inform HM Revenue & Customs of this fact.

It is a requirement of tax law that Letting Agents make an annual return to HM Revenue & Customs which details the names and addresses of all individuals to whom rental income has been passed on, together with the gross rents received by them.

Caravan letting income is treated as furnished lettings or, in very exceptional circumstances, furnished holiday lettings.

The profit or loss arising on letting income is calculated by preparing Income & Expenditure Accounts on an annual basis made up to 5 April.

Allowable expenditure includes:-

1. Commision to agent
2. Gas and electricity
3. Rates
4. Site rent
5. Repairs to caravan and renewals of soft furnishings
6. TV licence and TV hire
7. Linen hire
8. Insurance
9. Finance and interest charges
10. Cleaning, telephone, postage and stationery
11. Accountancy fees
12. And in most circumstances, Capital Allowances (tax equivalent of depreciation).

An adjustment is required when the caravan is not available for letting (this would include periods when you use the caravan yourselves, when it is not available for hire and where you rent it to family and friends at a rate which is not considered to be a realistic commercial charge).

It is important that all supporting invoices, statements, finance agreements etc., are safely retained by you, so that back-up information is available to support the figures shown in the income and expenditure accounts.

Loss Relief

The 'losses' arising from the above are available to be offset against other income arising in the same income tax year. For an individual who has paid tax at the basic rate on his other income, a claim of £5,000 would produce an income tax refund amounting to approximately £1,000. (For a 40% taxpayer, the refund could amount to £2,000).

Accounts

Accounts in the form of an income and expenditure statement must be produced each year and made up to 5th April. The accounts will include private adjustments to reflect the owner's private usage of the caravan.

Due to the technical nature of the work involved, it is strongly recommended that you employ the services of a professional accountant with experience in this field to do this on your behalf. A fee is charged for this service, the level of which can be agreed in advance. Apart from submitting the accounts and related claim, the accountant will be able to correspond as required with the tax office to answer any queries that may arise. You will not need to deal with HM Revenue & Customs yourself.

Refunds

Once the claim has been processed by the tax office, the repayment will be sent directly to your nominated bank account. It will be necessary for a completed Self-Assessment Tax Return to be prepared and submitted to your tax office before the refund can be made to you.

As an integral part of the service provided to all our owner clients, completion and submission of this form is included in our standard fixed fees. These are currently £210 plus VAT per annum. Where more than one caravan is owned, an additional fee of £105 plus VAT is charged for each additional caravan.

Our fees can be paid by credit card if preferred. Fees are normally charged in two instalments: an initial payment of £115 followed by a balance of £126.50 upon completion of the claim.