COVID 19 Business Support for Individual Landlords

COVID 19 Business Support for Individual Landlords

Rita4Rent Michael Wright This Guide was produced by Michael Wright, Landlord Tax Expert at Rita4Rent, who are specialist landlord tax advisors, and the sole recommended tax advisors of the Residential Landlords Association. Michael now writes for on matters relating to property and landlord tax. Rita4Rent are very happy to speak with Listentotaxman visitors to discuss any tax questions they might have – just visit the Rita4Rent website for contact details.

Sadly, the current COVID-19 pandemic has had two big impacts. One is a huge health impact on the country. The second, is on the economy which has hit employees, small (and large) businesses, and of course, people that hold investments such as landlords with rental income. This has resulted in the government introducing new measures to try to support people who are suffering financially as a result. This blog identifies what is and isn’t available to landlords

Self-Employment Income Support

By far the most common question during the pandemic we have received, is whether a landlord receives self-employed trading income that will qualify for the self-employed income support grant. Unfortunately, for a lot of people who receive property income, there isn’t a happy ending to this! The answer is not usually. Property income falls in to three categories:

Where Trade Exists

For property income to be trading income, the element of service is key. Hotels and B&B’s are two easy examples here. Also, if you have a business model where you intend to profit from selling properties by either a natural increase in their value, or more commonly, to undertake some sort of renovation and develop the property, this is likely to be seen as trading. Some people know this as flipping. The key is that you are intending to generate profits by selling properties rather than by rental income.

Furnished holiday lets (FHL’s) are a bit of an odd one. FHL properties must meet certain conditions in the length of occupation, availability of occupation and actual occupation of the property. If the conditions are met, FHL’s benefit from some tax advantages normally given to trades.

This leads to the question as to whether FHL income would make you eligible for the self-employment income support. Although it hasn’t been directly referred to in any of the guidance, it appears to be unlikely. FHL income is still property income and reported on the property income pages. The trading income is likely to be based on what is reported on the self-employment income pages in the tax return.

Where a Trade Partly Exists

In some cases, a trade may partly exist. When we say a trade may partly exist, what we mean is that a trade runs side by side with your property business. Some of the examples given by HMRC in PIM 4300 include:

  • “Providing cleaning services while letting
  • Supply of Clean Linen.
  • Regular Provision of Food.”

The key is that these must be services that are above and beyond what you would normally provide as a landlord. It would also be considered whether your tenant pays separately for the services in addition to their normal rental payment, and if the tenant can opt out of the additional services or not.

In terms of the self-employment income grant, because the amount you receive is based on the trading income you have reported in your previous tax returns in 2016/17, 2017/18 and 2018/19 it depends how your income is represented on your tax returns. Any amendment made to the tax return after 26th March isn’t considered. If you have partly run a trade, this should have been reported on the self-employed pages and would be considered as trading income.

Where a Trade Doesn’t Exist

Unfortunately, a lot of landlords fall into this category and their property income is treated as investment income. Some of the examples that HMRC have given as normal services a landlord would undertake include:

  • “the cleaning of stairs and passages in multi-unit premises,
  • the provision of hot water and heating,
  • supervision involving rent collection and arranging new tenancies, arranging for repairs to the property.”

HMRC have also pointed out that undertaking a significant number of these activities, where they are a full-time landlord maybe with a significant portfolio, does not change the nature of the income.

If you do receive trading income you may be eligible for self-employment income support if you meet the other conditions. Trading profits must be no more than £50,000 and represent more than half of your income. You will need to have traded in the 2018/19 tax year previously and intend to carry on trading. You must have lost profits due to COVID-19 and you will need to make an application. Applications aren’t open yet but HMRC are intending to write to anyone potentially eligible by mid-May.

Mortgage Holiday

One of the main schemes mentioned in the government guidance for landlords, as a result of the current situation, is the mortgage holiday. You may be able to apply for a mortgage holiday for up to three months; this includes buy to let mortgages. To obtain a mortgage holiday, you need to speak to your lender. Just to clarify, a payment holiday is a deferral which means you will still have to pay the mortgage back at some point, so it is strictly a cashflow advantage you will receive. It will also add a little bit of interest to the amount you have to ultimately repay.

Self-Assessment July Payment Deferral

If you meet the relevant criteria and owe a payment on account in July, and can’t pay this because of COVID-19 related hardship, you can defer payment until next January. No application is required so it is just an automatic offer. You should be aware of whether you have a payment due 31st July already, as this is based on your already filed 2018/19 tax return.

In contrast to the mortgage holiday, HMRC won’t charge you interest on this, so long as it is paid by 31st January 2021. Therefore, this should be used in priority to the mortgage holiday where both are available.

Time to Pay Arrangements

Time to pay arrangements are not a new concept; they have been around long before the pandemic. The idea with a time to pay arrangement, is that if you currently have an outstanding tax bill that you can’t pay, you would speak with HMRC and agree a payment plan based on what they feel you can afford. They go through a list of questions to try and assess what you can pay and then you would pay in instalments.

Generally, it works out well for both parties where the agreement is kept. HMRC won’t have the costs of legal fees or enforcement action in recovering the debt, and if the terms of the agreement are kept, this usually means they stop charging penalties. They usually add a bit of interest but at the current rates (calculated as The Bank of England interest rate plus 2.5%) this is likely to be negligible.

All that has really changed, is that they have set up a new helpline to assist with queries regarding COVID-19 and they are obviously likely to be sympathetic if you are affected by the current situation.

Further Measures for Furnished Holiday Lets

For a lot of Landlords, VAT isn’t something to worry about. Standard rental income from residential properties is exempt for VAT. This is not the case for furnished holiday lets and some commercial property income where, if the VAT thresholds are exceeded, you will need to register for VAT.

If you do have a VAT registered property business, and owe a payment between 20th March 2020 and 30th June 2020, you can defer this until 31st March 2021 at the latest. Similarly to the July payment on account deferral, there is no application required as it is an automatic offer.

In addition, the government’s announcement that it would reimburse local authorities for giving 100% business rates relief for certain types of properties, include self-catered holiday homes for 2020/21. The ultimate decision on business rates relief is down to the discretion of the local authority.

Other Tips

The most important thing to do in the current situation is to try and stay as up to date as you can.  New changes have been announced frequently and we are still waiting for full guidance on some of schemes that have been announced. Good sources of information include:

  • Your own tax advisor if you are represented.
  • Relevant documents from the government website.
  • Minister briefings on the daily update.

In the government briefings, either when the Chancellor of the Exchequer - Rishi Sunak - or the Business Secretary - Alok Sharma - have been speaking, are usually when relevant financial announcements have been made.

The final tip is to be wary of HMRC scam communications, because they are on the increase. They usually offer refunds or financial support, or claim to be able to support you in obtaining refunds from the government.

HMRC made special mention of this in the new guidance published on the self-employed support scheme. The only way to apply for the self-employment income support is through the website, so be wary of texts, emails and phone messages pretending to be from HMRC.

Rita4Rent Michael Wright This Guide was produced by Michael Wright, Landlord Tax Expert at Rita4Rent, who are specialist landlord tax advisors, and the sole recommended tax advisors of the Residential Landlords Association. Michael now writes for on matters relating to property and landlord tax. Rita4Rent are very happy to speak with Listentotaxman visitors to discuss any tax questions they might have – just visit the Rita4Rent website for contact details.