Latest regulatory updates
Last updated 11th October 2018
Kurt Janson, Director of the Tourism Alliance, gives a monthly update on the latest regulatory changes affecting the hospitality industry.
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While the Government’s Rent-a-Room scheme has been around since 1992, it was extended to Traders in 2015 and there has been renewed interest in it recently due to the rise in the number of people listing properties on websites such as AirBnB and it has some applicability to tourism accommodation providers.
At its basic level, the Rent a Room Scheme lets you earn up to £7,500 per year tax-free by letting out furnished accommodation in your home.
While the scheme was introduced to help alleviate the housing crisis by encouraging people to rent out unused bedrooms in their home without having to declare the income to Government, the scheme is actually available to tourism accommodation businesses. The only proviso is that, to be eligible for the scheme, you have to live on the premises – so it is not available to self-catering operators.
There are also a couple of other factors that mean that the scheme will not be suitable for many B&Bs or Guesthouses.
First, if you are a trader, the allowance is £4,250 rather than £7,500.
Second, and importantly, the Rent-a-Room scheme changes the way your tax liability is calculated.
For a normal business, your tax is calculated by subtracting your costs from your revenue and paying tax on the gross profit. Under the Rent-a-Room scheme, you pay tax on the gross revenue you earn above the allowance level.
So, for example if are a trader and you earnt £10,000 from your B&B and your expenses are £7,000 then under the normal tax rules you would pay tax on the £3,000 gross profit. However, under the Rent a Room Scheme, you would pay tax on £5,750 (the level of revenue above the £4,250 allowance). Obviously, under these circumstances, it is better to calculate your tax in the normal way.
It is possible to move in and out of the scheme depending on your yearly income and expenditure levels but you must let HMRC know by 31 January following the end of the tax year as to how you want your tax payment calculated.
And finally, if your B&B generates a loss, under the Rent-a-Rooms Scheme, you cannot carry that loss forward to be claimed against your profits in the subsequent year.
So, overall, the scheme will only really be of interest in situations where you are not trading and the level of revenue that you generate is relatively low.