Share this content
11

Holiday lettings commission and VAT

How to make sure we only pay VAT on our revenue

Didn't find your answer?

Hi, we have started a holiday lettings company that offers holidays in caravans and lodges. 

We don't own the properties, we only manage on behalf of an owner and charge hem commission. 

The challenge we have is all monies for the holidays go into our business account and are then released to the owner on a monthly basis minus our commission and any monies for cleaning service that we provide. 

The problem is, this is then causing us to race towards the VAT threshold as all monies are considered as turnover in the 12 month period, even though 85% is paid back to the owner. 

We have had some advise that a Cloent account might be the way to go and we are seeing our accountant in 2 weeks time in support of this. However in order to get a client account you need to get on the anti money laundering register and we are waiting for trading standards to come back and confirm which association we need to register with. 

This is all taking a lot of time and meanwhile the monies comming in is growing and I am worried that we will not get a client account in place before we hit the threshold and have to pay against values significantly inflated due to monies not being ours. 

I am also not sure if the approach we are taking is a bit overkill. 

Any advice on how to tackle this issue?

Replies (11)

Please login or register to join the discussion.

chips_at_mattersey
By Les Howard
04th Apr 2021 16:59

The. VAT outcome will depend on the contractual position. You need to be the agent for the property owners, not the principal making the supply to holiday makers. Your website Ts & Cs and landlord contracts, etc should be clear. Your day to day practice must also be consistent.

Thanks (2)
Replying to leshoward:
avatar
By Tur123m
04th Apr 2021 18:26

Hi Les,
Thanks for your answer,
Our T&Cs state  'We are a private company providing properties on the location stated, for the owners of said properties.' So hoping that we have covered ourselves.

But the issue is around how to handle the money and either get a client account or be able to demonstrate that all of the money coming into the business account isn't actually ours.

It feels like we are.missing something and finding it really hard to find an answer to avoid us paying VAT on the full amounts, no issue paying VAT on our 15% commision but on the full 100% we will be quickly out of pocket.

Thanks
Mark

Thanks (1)
Replying to Tur123m:
ALISK
By atleastisoundknowledgable...
04th Apr 2021 18:38

I think that your T&Cs need changing. Look on a few competitors’ websites and a see what they say.

Thanks (1)
Replying to Tur123m:
avatar
By SXGuy
05th Apr 2021 07:36

I think your missing the point. Yes the issue is how you handle the money, but until your terms are clear as to whether you are the agent or not, then you can't sort the issue of the money.

In other words if your terms are clear then not all the money you receive could be treated as turnover and could be ignored when calculating the vat threshold.

Thanks (1)
Routemaster image
By tom123
04th Apr 2021 18:47

The key word you need to keep stating is Agent.

Nothing to stop you running and accounting via two normal bank accounts in the beginning until you get your client account.

Thanks (1)
avatar
By Tax Dragon
05th Apr 2021 00:18

I don't really see the issue. The holiday makers presumably pay VAT, you collect that VAT... isn't it a bit like ALISK's question about a venue's commission?

Thanks (1)
Replying to Tax Dragon:
Routemaster image
By tom123
05th Apr 2021 07:50

I am presuming the OP is intending his commission income to remain under the Vat threshold.

Obviously if the holiday rental income is included this would not happen.

These are B2C transactions, so price sensitive, and getting that VAT saving may help

Thanks (1)
Replying to tom123:
avatar
By Tax Dragon
05th Apr 2021 14:41

B2C? Isn't C the holidaymaker? I read the OP as meaning that the supplies were to the (commission-paying) park (or maybe caravan etc) owners.

Thanks (1)
avatar
By Tur123m
05th Apr 2021 16:27

Hi,
The model is that we are managing the renting of holiday caravans and lodges out for the owner for 15% commision on what the holiday maker pays.
The money comes to us and we then take our 15% out of the money received and the owner of the property gets their 85%. We don't own any properties we purely are an agent for the owner and we probably need to tighten our T&C's a little to ensure that is clear we are an agent for all involved.
I am obviously happy paying VAT on the commision values when that reaches the threshold which will take some time based on only 15% of the amount we receive from holidaymakers. But if the full 100% of received monies is considered our taxable turnover then we will hit that very quickly and then we will lose money as our commision won't cover the 20% VAT and if we put the prices up to cover 20% additional on the full amount then we will not be competitive.
Also, whether the owner pays VAT on their income if it breaches the threshold is something I am hoping we don't need to worry about, as long as we are doing the right thing.

Hope that makes sense.

Thanks
Mark

Thanks (0)
Replying to Tur123m:
avatar
By paul.benny
05th Apr 2021 16:39

Tur123m wrote:

Hi,
...we probably need to tighten our T&C's a little...

This is the fundamental part. I'm sure the wise and experienced people who have responded have grasped your business model.

As Les has pointed out, contracts with both owner and holidaymaker are relevant. And it's not just a case of sprinkling the contract with the word agent. Other terms may be important too, such as who bears the financial risk if the holidaymaker doesn't pay (and what happens to any deposit). The answers themselves aren't important here. As Tom has said, take a look at some competitor terms. And get a lawyer to draft your term. The lawyer probably doesn't need to understand VAT, just the difference between agent and principal.

Thanks (1)
avatar
By Tur123m
05th Apr 2021 17:05

Thank you all for your responses it has been really helpful as it's been difficult to get clear guidance anywhere else so far.

We will focus on the T&Cs it is clear that this is the way to manage the original problem.

Thanks (0)
Share this content