If you let out a holiday property, VAT is one of those things you can largely ignore – right up until you can’t.
Most owners with a single property never get near the registration threshold. But for anyone running multiple properties, or combining a holiday let with another business, VAT can become a real problem if you’re not watching the numbers.
The rules also tripped up a lot of owners last year when the Furnished Holiday Lettings (FHL) regime was abolished from April 2025.
A common assumption is that scrapping the FHL regime also changed VAT. It didn’t – HMRC has been clear that holiday accommodation remains standard-rated for VAT regardless of whether the property would have qualified as an FHL under the old rules. So if you crossed the threshold before, you still cross it now.
This guide covers when VAT actually catches you on a holiday let, what registration looks like in practice, and whether the Flat Rate Scheme is worth a look.
When VAT Becomes Your Problem
You have to register for VAT if your total taxable turnover passes £90,000 in any rolling 12-month period.
That’s the standard threshold for any business, holiday lets included. The deregistration threshold is £88,000.
Two things often catch holiday let owners out:
- The threshold runs on a 12-month rolling basis, not a tax year. You could cross it in October, March, or any other month – the test is whether the previous 12 months total tipped over £90,000. Once you cross it, you have 30 days to register with HMRC.
- It’s all your taxable turnover, not just the property. If you’re a sole trader or in a partnership, every other taxable activity you run counts towards the same threshold. A consultancy bringing in £60,000 plus a holiday let bringing in £35,000 takes you over – even though neither alone breaches £90,000.
Where the property is held in a limited company, the threshold sits at company level rather than on the individual.
That can change the picture for owners running multiple companies, but it also means anti-avoidance rules can apply if HMRC views separate companies as artificial fragmentation.
What Counts Towards the £90,000
When you’re working out your turnover for VAT, the figure isn’t just rental income. Anything you charge guests in connection with their stay forms part of taxable turnover:
- Nightly or weekly rental income
- Cleaning fees and changeover charges
- Pet supplements, extra-bed charges, late check-out fees
- Welcome hampers, food and drink sold to guests, hot tub or sauna fees
- Damage deposits – though these only count if retained, not if returned
Refundable deposits don’t count until they’re forfeited. But add-ons and extras that go on the booking confirmation are part of the price for VAT purposes, so they count from day one.
Charging VAT Once You’re Registered
Once you’re VAT-registered, the price your guests pay needs to include VAT at 20%. The VAT element belongs to HMRC – you’re collecting it on their behalf, not adding to your income.
That means:
- A nightly rate of £100 becomes £120 to keep your net income at £100
- Or you absorb the VAT and your nightly rate drops to £83.33 net
- Most owners end up doing some of both, depending on how price-sensitive their market is
Holiday accommodation is competitive, particularly at the budget end, and adding 20% to your prices overnight isn’t always realistic. If your competitors aren’t VAT-registered, you’ll be 20% more expensive than they are unless you cut your margin.
A few practical responses:
- Phase the change: Bring rates up over a season rather than a single price rise.
- Differentiate where you can: Adding value – linen, hot tubs, EV charging, premium cleaning – gives you cover for a higher price.
- Use seasonal pricing: Push more of the increase into peak weeks, where guests are less price-sensitive, and absorb more in shoulder months.
The flip side, covered below, is that you can now reclaim VAT on most of your costs.
What You Can Reclaim
Once registered, you can reclaim VAT on goods and services you buy for the holiday let business. For most owners, this is where VAT registration starts to feel less painful. Common reclaimable expenses include:
- Furniture, white goods, soft furnishings and fittings when you furnish or refurbish
- Repairs, maintenance and improvements to the property
- Utilities during let periods (electricity, gas, water, internet)
- Cleaning, laundry and changeover costs
- Marketing, photography, website and listing fees
- Accountancy, legal and professional fees related to the let
You’ll need a valid VAT invoice for each expense – a till receipt usually isn’t enough on its own. Make sure suppliers know you’re VAT-registered and ask for a VAT invoice as standard.
Where a property is used partly for personal use (you stay in it for two weeks of the year), you’ll need to apportion the VAT reclaim accordingly. HMRC won’t accept a full reclaim on costs that relate partly to private use.
How the FHL Abolition Affects VAT
The FHL regime was abolished from 6 April 2025 (1 April 2025 for companies). The change scrapped the special income tax, CGT and capital allowances treatment that holiday lets used to get, but it left VAT alone.
Holiday accommodation is still treated as a commercial supply for VAT purposes – the same as a hotel or B&B. So if you would have had to register before, you still have to register now. If you’ve been reclaiming VAT on your costs, you can keep doing so. The FHL change affects how your profits are taxed, but not whether VAT applies.
Two practical knock-ons worth flagging:
- If you’ve moved a holiday property to long-term residential letting in response to the FHL changes, the VAT treatment changes too. Residential lets are exempt from VAT, which means no VAT on the rent – but also no VAT recoverable on the related costs.
- If you’re restructuring into a partnership or limited company to regain income-splitting flexibility lost under the FHL regime, the VAT position needs careful consideration. Whether the new entity inherits the existing VAT registration, or registers fresh, can affect what you can reclaim and when.
The combined effect for some owners has been a bigger tax bill on income (no more capital allowances, mortgage interest restricted to 20% relief) without any change to the VAT position. Our landlord’s guide to 2026 covers the wider picture, and our mortgage interest tax relief article goes deeper on the finance cost restriction.
The Flat Rate Scheme: Worth a Look or Not?
The Flat Rate Scheme lets businesses with taxable turnover under £150,000 (excluding VAT) pay HMRC a fixed percentage of gross sales instead of working out input and output VAT separately. For holiday accommodation, the flat rate is 10.5%, with a 1% discount in the first 12 months of registration.
It works like this. You charge guests the standard 20% VAT as normal, but you only pay 10.5% of your gross (VAT-inclusive) turnover over to HMRC. You don’t reclaim VAT on most of your purchases – capital assets over £2,000 are an exception – but the difference between the 20% you charge and the 10.5% you hand over can be a real cash benefit.
Where it tends to work well:
- Lower-cost operations: Properties that don’t need much spending on furniture, repairs or services
- Owner-managed lets: Where you’re not paying out for cleaning, changeovers and maintenance
- First-year registration: With the 1% discount
Where it’s risky:
- High-cost or refurbishment-heavy years: If you’re spending big on furniture, equipment or major repairs, the VAT you’d be reclaiming on the standard scheme can easily exceed what you’d save on the flat rate.
- The “limited cost trader” rule: If your goods purchases (excluding food, fuel for vehicles, capital items and services) come to less than 2% of your turnover or less than £1,000 a year, you’re forced onto a 16.5% flat rate. That wipes out most of the benefit and often makes the standard scheme cheaper.
- Mixed-property businesses: If you let both holiday accommodation and long-term residential property and the structure brings them under one VAT entity, FRS turnover would include the residential rent, which could push you over the £150,000 limit and bring exempt supplies into the calculation.
The honest answer on FRS is that it needs modelling with your actual numbers. A simple comparison – your expected VAT on sales minus your expected VAT reclaim under the standard scheme, against 10.5% of your gross income under FRS – will usually settle whether it’s worth doing. We covered this in more depth in our voluntary VAT registration guide.
Records and MTD
VAT-registered businesses have to keep digital records and file VAT returns through MTD-compatible software. There’s no opt-out for holiday lets, and there’s no minimum turnover below which you can avoid it once you’re registered.
Practically, that means:
- A digital record of every transaction in and out of the business
- VAT invoices for everything you reclaim against
- Quarterly VAT returns submitted through software – not the old HMRC online portal
Cloud accounting software (Xero, QuickBooks, FreeAgent, and similar) handles this for most small holiday let businesses without trouble. If your bookkeeping is currently a shoebox of receipts, that has to change before you register – or in the run-up to crossing the threshold.
How Double Point Can Help
VAT on holiday lets is one of those areas where the right structure and the right scheme make a real difference to what you keep. Whether you’re approaching the threshold for the first time, restructuring after the FHL changes, or just want a fresh look at whether the Flat Rate Scheme works for you, it pays to model the numbers properly before committing.
At Double Point, our chartered accountants help holiday let owners across the UK manage VAT returns, choose the right scheme for their situation, and handle ongoing bookkeeping so admin doesn’t get in the way of running the business.
Book a free consultation, and we’ll talk through your situation.