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Business rates for holiday lets: the lowdown

Sat 23 March 2019

Business rates for holiday lets is currently under the Government spotlight. Tax expert John Endacott of PKF Francis Clark looks at the implications for owners.

The Government is currently consulting on a change to the way in which English self-catering holiday accommodation is assessed for business rates. The nub of the issue is that small business rates relief was introduced and then extended without any thought for holiday let properties. 

According to the Government, there are an estimated 47,000 holiday lets in England, of which 96% qualify for complete exemption from business rates because of small business rates relief. The Government’s consultation document refers to these properties as ‘second homes’ and is concerned that they ‘are not genuine businesses’. It adds that owners may be avoiding council tax by claiming that their property is available to let but making  ‘little or no realistic effort to actually let it out’. 

The incentive for owners is that properties which are liable for business rates can then attract small business rates relief. Then, instead of being liable for council tax, there is nothing to pay. This is because business rates take priority over council tax and small business rates relief reduces your business rates assessment to nil. Local authorities have a duty to investigate whether there is a genuine commercial business but the system doesn’t encourage them to do so. What is more, in many cases the investment in manpower to investigate is not a priority. 

The government’s likely solution to concerns that owners are playing the system is probably going to be to make the rules more complex and introduce more conditions for business rates to apply. This will be more burdensome for owners and may require more record keeping. Also, new holiday let businesses will probably have to initially pay council tax and then claim a refund if they subsequently qualify for business rates. 

Apart from the issues raised by this government consultation, there are wider concerns about how business rates apply to holiday lets. Small business rates relief can give an unfair cost advantage to smaller operators to the detriment of larger holiday let complexes. Ultimately, a broader review and reform of business rates is required as the current system seems past its sell by date.

For further information and advice contact John Endacott on 01392 667000, john.endacott@pkf-francisclark.co.uk and pkf-francisclark.co.uk.

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