Tax Questions: Treatment of Income from Sub-letting Caravans
When it comes to tax treatment of receiving income from sub-letting your caravan(s) there are some general principles that apply.
Firstly you need to notify HMRC for any income you receive you have not paid tax on to avoid interest and penalties. Income from caravan sub-letting is normally regarded as furnished lettings and not furnished holiday lettings. Profit or loss arising on letting income is calculated by preparing income and expenditure accounts on an annual basis to 5 April year end. Special rules may apply at the commencement and cessation if furnished holiday lettings apply.
Secondly, there are special rules if more than one caravan is let. Income is regarded as monies received by you and the expenditure is monies spent by you when renting the caravan. This includes payments for commission to an agent, gas and electricity, rates, site rent, repairs to caravan and renewals of soft furnishings, TV licence and hire, linen hire, insurance, finance and interest charges, cleaning, phone, post and stationery costs and in most cases Capital Allowances (tax equivalent of depreciation).
When a caravan is not available for hire an adjustment is made and these periods should be kept to a minimum. This includes times when you rent to your family and friends at lower rates or use it yourself to stay in.
It is most important that all supporting invoices, statements and finance agreements are safely retained by you as they will be required for preparation of the claim and as back up information to support the claim.
Losses of furnished lettings are usually carried forward and set against furture profits. However in the majority of cases Capital Allowances may be set sideways against general income of the same year. These instances are where the caravan is available for let for more than 50% of the park letting season and lettings in excess of 105 days have been achieved at a commercial rate.
Profits will be added to other income in the same year and charged to tax at the appropriate rate. For an individual who paid tax at basic rate on other income, a profit of £3,000 would have tax due of £600 (for a 40% taxpayer the tax due will be £1,200). Any tax will normally be due and payable on or before 31 January on the income arising in the preceding year ending on 5 April.
Losses arising from the above are available to offset against other income arising within the same tax year. For an individual who paid tax at basic rate on his or her other income, a claim of £3,000 could produce an income tax refund amounting to around £600 (for a 40% taxpayer the refund could amount to £1,200).
In the case of furnished lettings if losses of £4,000 were obtained of which £3,000 related to Capital Allowances, £1,000 would be carried forward and be available to set against future profits while £3,000 losses will be set off sideways to give a relate of approximately £600 (for a 40% tax payer the repayment issued could be £1,200).
- Commercial rent must be charged and a caravan let with a view to realising profit.
- The caravan must also be let for 105 days minimum and available for letting for 210 days minimum per year.
- The caravan must not be let to anyone for 31 days or more in any 7 month period.
Accounts in the form of an income and expenditure statement must be produced each year and made up to 5 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 to do this on your behalf. At LHP we are experienced in handling tax on caravan lettings. A fee is charged for this service, the level of which can be agreed in advance. In addition to 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 HMRC yourself as LHP will act on your behalf.
Once your claim has been processed by HMRC the repayment will be sent directly to you. You have to complete a Self-Assessment tax return before the refund can be made to you. As an integral part of the service provided to all our caravan owner clients, completion and submission of this form for 1 person is included in our standard fixed fee for each tax year.
There is an additional charge for any further tax returns for example where there is more than one owner. Please be advised there will be a one off fee for SA1 registration with HMRC. If you already have an accountant, we will happily work with them on a limited engagement basis to prepare the caravan accounts and related claim only. Our advice is based on our current understanding of relevant tax legislation which is subject to change and/or interpretations.
For help with your caravan letting tax, please don’t hesitate to get in touch with our team of tax experts at LHP. Let’s Talk.