Fire Regulations Expenditure

The new Fire Regulations have caused considerable work and expense this year for Holiday Let owners across North Wales.

You can find the official guidance from Welsh Government here –

https://www.gov.wales/make-your-guest-accommodation-safe-fire

Of course quality accommodation providers have no issue in complying with the regulations and have been busy installing new smoke alarms, fire doors and other items to ensure the continued safety of guests.

This extra work does not come cheap though, and owners have been paying large invoices at a time when bookings have been slowing.

Let’s take a look at the tax and accounting treatment of all this extra expense.

Revenue vs Capital Expense

Firstly, let’s go back to basics on the types of expenditure. 

Revenue Expenditure covers day to day expenses involved in running (‘creating revenue’) your business. Cleaning, Gardening, Agency fees etc. These are always allowable against your tax bill.

Capital Expenditure concerns ‘one off’ expenditure. Your initial property purchase is the most obvious example. Subsequent expenditure that adds value to your offering will be Capital in nature. Installing a hot-tub, log burner or new driveway are all capital expenses.

Furnished Holiday Let vs BuyToLet

One of the major tax advantages of a FHL is that it is classed as a trading business and so Capital Allowances (CA) are available. This means you are generally able to claim the Capital expenses in the year they are incurred against your tax bill. 

TAX warning – Capital allowances are generally not available to BuyToLet residential landlords. Replacement of Domestic Items Relief (RODIR) is available instead, but this only applies to replacing existing items, NOT purchasing new items. BuyToLet landlords should keep records of Capital expenditure for future relief against CGT when they sell.

Cash Accounting vs Accrual Accounting

Strictly speaking, Capital Allowances are only available under accruals accounting, however HMRC accept that for FHLs using the cash basis (which will be the majority) it is acceptable to claim Capital Allowances as a general property expense. 

Fire Regulation Expenditure

Clearly, the majority of expenses will be Capital in nature. New Fire doors, new thumb locks, smoke alarms etc are all ‘one offs’ and qualifying Holiday Lets will be able to claim the expense against profits regardless of their accounting method.

Trading Losses

For some Holiday Let owners, the additional expenditure this year may have coincided with a downturn in bookings. This could potentially lead to a trading loss for tax year 2023/24. Whilst this is far from ideal, the good news is that the loss can be carried forward to reduce your tax bill in the following year. 

Summary

Capital Allowances are one of the many tax advantages of a qualifying Holiday Let. Most expenditure on Fire Safety will be allowable against tax even for businesses using the cash accounting basis.

You’re keeping guests safe, keep your profits safe too. Speak to us here at PropertyTax.Wales for fixed price packages for Holiday Lets.