Commercial Racism - Repeal of the FHL Rules

This legislation is an appalling abuse of trust by the government. I am referring to the Repeal of the Furnished Holiday Lettings Rules announced in the Budget of 2009 and confirmed in the recent 2010 Budget despite widespread condemnation from the Tourism Industry. The rules currently allow owners of self-catering cottages in the UK, as long as they satisfy certain tests, to be automatically treated as trading businesses for tax purposes rather than have to justify this status to HMRC under general principles. From the new 2010/11 tax year, all self-catering businesses will be treated as property landlords for tax purposes.

The labour government’s motives for introducing this are entirely political, as evidenced by the lack of any formal consultation process that all precedent suggests is all but mandatory, and the response to industry objections has been glib. It would be very easy to extend qualification criteria to differentiate genuine self catering businesses serving the tourism market from second home owners, buy-to-let and other property landlords. But the absence of constructive proposals and responses along these lines seems purely vindictive at worst, and ignorant (of the value and place of self-catering in British tourism) and irresponsible at best. Using EU legislation non-conformity as the reason for introduction is completely disingenuous.

The loss of this status and of benefits that will continue to be available to hotels and B&Bs is wholly unfair. The removal of the ability to offset losses against other income or, if profitable, to use income earned as qualifying income for pensionable purposes, is a major blow, as is loss of capital allowances and Capital Gains tax (CGT) reliefs. Essential annual repair & maintenance costs will be now disallowed. The alternative 10% Wear & Tear allowance available to property landlords will not cover what for most of these businesses is their largest single annual expense. Many of these businesses, especially in rural communities such as the Scottish Borders, represent the only source of income for their owners. For others, the investment in their business is far in excess of the financial reward. Farmers, struggling to survive on the reducing returns from their primary business, have invested in the conversion of outbuildings and renovation of neglected dwellings on their property, to the lasting benefit of or our national heritage and the Tourism Industry, only to be threatened by the loss of their ability to pool profits and losses on both activities The impact on the self-catering sector specifically and Scottish and British tourism in general will be significant and negative. The only question is the scale and timing of an inevitable loss of self catering beds (the largest source of tourism beds, exceeding both B&Bs and Hotels) in the coming years. If this was a decision taken by a manager in UK plc, and I was the CEO, heads would roll. Not so much for the decision itself, but for the lack of proper impact review or consideration and understanding before taking it.

The HMRC statement in their technical paper that any attempt by an SC business to offset the effects of the repeal by providing additional services will result in them apportioning Revenue to isolate the rental portion is nothing more than vindictive and a clear acknowledgement that the primary motive is not one of fairness, but plain old short-sighted politically-motivated money-grabbing. The transparency would be laughable if it weren’t deadly serious. I would go so far as to describe it as Commercial Racism. There is no logical reason to suggest one form of the three primary accommodation service provisions are more of a business than the other. They are merely different shades of the same animal. The common customer base and the service they provide are the defining factors that set them all apart from mere property landlords.

The motive for the repeal was political so the solution will have to be political. Attempts to get the perpetrators to change their position are futile. The value of the efforts of Visit Scotland, the Association of Scottish Self Caterers (ASSC) and others is as ammunition for their opponents. Whilst the Labour dead horse we are flogging is hopefully on its way to the knackers yard, opposition parties are promising a reversal. Whether it is mere posturing, or a genuine promise that will be delivered swiftly after the election, remains to be seen.

See also article at http://www.thesouthernreporter.co.uk/news/Tourism-tax-on-holiday-letting.6177433.jp