Nowhere to hide for Furnished Holiday Let owners – new digital platform reporting requirements

From 01 January 2024, new reporting requirements are in place for digital ‘platform operators’, necessitating the collection, verification and reporting of seller information to HM Revenue and Customs (HMRC). The new regulations, The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2022, implement the Organisation for Economic Co-operation and Development (OECD) Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy and are designed to ensure enhanced compliance and reduce tax abuse and so that those failing to declare their full taxable incomes have nowhere to hide!

A ‘platform operator’ is an entity that contracts with sellers to make available any software, including a website or applications (apps), to allow to seller to connect with other users for the provision of a ‘relevant service’. This is particularly relevant to property taxation because a ‘relevant service’ includes the rental of property – therefore extending these requirements to lettings marketplaces such as Airbnb, Vrbo and Booking.com. Banks and Financial Institutions have already been sharing account data with the tax authorities for a number of years.

Platform operators must, for each calendar year, by no later than 31 January the following year, provide to HMRC by electronic submission relevant information including names (individual or business), addresses, taxpayer references, dates of birth and/or business registration numbers, as well as details of their transactions. This information can also be shared across jurisdictions – i.e. not just UK, but potentially US and EU tax authorities!

Whilst E³ Consulting has always advocated that our clients properly declare all appropriate Furnished Holiday Letting (FHL) income, this legislation has been enacted due to the high number of UK operators/sellers/owners that have omitted to declare all of their income derived via digital platforms. HMRC will now be more aware than ever of all income generated from a FHL business, whether or not this has been fully declared by the owner. Deliberately understating taxable income could lead to penalties in addition to the required tax (of between 20% and up to 100% of the extra tax due, if concealed).

Tax arising from FHL properties located in both UK and across the European Economic Area (EEA)* could however be legitimately reduced and managed by tax relief available against UK Corporation or Income Tax, as applicable, by claiming the available capital allowances.

Capital allowances are a valuable form of tax relief derived from the capital expenditure on the purchase, construction or refurbishment of an eligible property. FHL owners may be entitled to claim capital allowances on items including heating and air conditioning systems, electrical installations, fire alarm systems, bedroom and lounge furniture, and kitchen and bathroom facilities, as well as games rooms and swimming pools in larger properties. Although, FHL owners may also be able to claim additional expenditure through repairs & maintenance during the refurbishment of properties, increasing the percentage of qualifying expenditure and tax relief available.

Claiming capital allowances (and if applicable, repairs & maintenance) allows you to proactively shelter relevant trading profits from tax payments, and in certain cases where there has been an overpayment of tax in earlier years (arising perhaps by not previously claiming your available allowances/relief), you might be able to achieve a tax rebate. So long as you still own the qualifying asset(s) you should be able to retrospectively lodge a claim if you had not already claimed the available tax savings; reducing the costs without the need for abusive tax avoidance – whether through elaborate tax structures or simply non-disclosure of income.

FHLs must meet certain criteria to attract these allowances, but those which are commercially ‘available to let’ for at least 210 days a year and actually let for a minimum of 105 days will currently qualify. The rules governing this tax relief do change regularly, thus employing a specialist is a must to ensure a truly optimised claim is achieved.

To explore the value we could add to your FHL property through capital allowances, or any of our other property taxation services (Community Infrastructure Levy (CIL) may also be applicable to developments/projects within England and Wales), please contact us on hello@e3consulting.co.uk or 0345 230 6450 for assistance and to see what you could save. As experts exclusively in property taxation, we provide a unique skill set to evaluate all the factors of your FHL expenditure, evolve an expert tax strategy and enhance your available cash savings. We look forward to speaking with you soon.

* The European Economic Area includes all member states of the European Union plus Iceland, Lichtenstein and Norway.