Writing in Property118, Rupert Chapman examines The Flat Rate VAT Scheme (FRS)

The article can be read here, and in summary ex[plains how the Flat Rate VAT Scheme (FRS) is a simplified way for businesses with turnover under £180,000 to pay VAT. For Furnished Holiday Lets (FHL), the FRS rate is 10.5%, offering potential savings compared to standard VAT accounting, which can approximate 14.5% of gross sales.

However, landlords must consider exempt supplies (such as off-season lets) as they count towards FRS turnover calculations. Additionally, the VAT treatment of FHL and Buy-to-Let (BTL) businesses is evolving:

• From 6th April 2025, FHL and BTL income will be reported together for income tax purposes, but will remain separate for VAT—unless deemed “associated” under HMRC rules.

• Associated businesses (closely linked financially, economically, or organisationally) cannot use FRS and must follow standard VAT accounting, potentially increasing VAT costs by up to 4% of FHL sales.

• Alternative structures (e.g. partnerships or limited companies) may push total income above FRS limits and could result in VAT being due on BTL sales.

Action Points for Landlords

• Assess whether your FHL and BTL businesses are financially linked, as this may affect VAT eligibility.

• Consider whether transitioning to a different business structure aligns with your tax and VAT strategy.

• If using the FRS, ensure that exempt supplies (e.g. off-season lets) are accounted for to avoid compliance issues.

As VAT rules remain unchanged but FHL tax methods shift, landlords must review their VAT strategy to ensure they remain compliant and financially efficient.