FSB:Small firms could go bust under government plans to change tax rules on holiday properties

FSB survey reveals eight in ten could go to the wall, and calls the government to listen to its ‘Give us a Break’ campaign.

Government plans to change tax rules on holiday properties could leave eight in ten small businesses in the holiday sector at risk of closure, the Federation of Small Businesses (FSB) has warned.

Under current rules, businesses run in the holiday sector – known as furnished holiday lettings – must be available to rent for at least 20 weeks of the year and must be rented out for 10 weeks. As a result, they receive a number of tax breaks. Following Government proposals to change the tax rules, businesses in the holiday sector will be considered as residential landlords rather than as trading businesses. The FSB’s survey results on the subject show that these tax changes could stifle trade, threatening the existence of the 60,000 self-catering firms across the country and costing jobs. The tourism industry alone could lose £200 million a year.

In the poll of 166 FSB members that run self-catering accommodation, more than half (52 per cent) said that they would have to make staff redundant if the tax rules were changed, and 81 per cent said changing the rules on their tax status would affect their financial viability. Another 43 per cent said the tax rules would put them off expanding their business and eight in ten said they would not be able take on any new staff.

The FSB is calling for the Treasury to ‘Give us a Break’ and review the proposed changes to remove tax breaks which could have such a damaging effect on small firms and the holiday sector at such a crucial time.

John Wright, Federation of Small Businesses National Chairman, said:

“Taking away reasonable tax breaks from small firms that run self-catering holiday properties could have a devastating impact on the sector. With eight in ten small businesses in the holiday sector fearing they could go bust, there will also be a human cost, with further job cuts at a time when unemployment is already spiralling.

“Small firms know they are crucial to pulling the economy out of recession and on to the road to recovery, but they need the Government to create a tax-friendly environment to do so. The FSB is calling on the Government to ‘Give us a Break’ and review the proposed changes that could not only have a damaging impact on the 60,000 small businesses that own a business in the holiday sector, but on the wider community as well.”

Notes

1. The FSB is the UK’s leading business organisation with over 215,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available www.fsb.org.uk

2. The FSB surveyed 1,000 of its members involved in the tourism industry from Thursday 26 November 2009 to Wednesday 25 November 2009 and had 166 responses.

3. In the Budget 2009, the Chancellor announced that from April 2010, the furnished holiday lettings rules will be abolished. The furnished holiday lettings rules currently allow owners of self-catering cottages in the UK, who meet certain criteria, to be treated as trading businesses for tax purposes. Under the furnished holiday letting scheme, landlords who rent out holiday accommodation in Britain are treated as traders rather than investors. However, as UK owners of similar properties elsewhere in the EU cannot qualify for this treatment, the UK Government believes that these rules may not be compliant with European law and has announced that they will be repealed from April 2010.

Tax breaks that business owners running self-catering holiday properties receive, include: offsetting the cost of furniture and fittings – often thousands of pounds each year – against earnings; paying a reduced capital gains tax when they sell; enjoying some inheritance tax benefits; counting earnings when calculating pension relief; and writing off trading losses against other income, which reduces the amount of income tax they pay. Following the changes, such landlords will be classified as investors and the tax breaks will be taken away.
Research by the Tourism Alliance suggests the tourism industry will lose £200 million. There are 60,000 self-catering firms in the UK. If 10 per cent (6,000) of those firms ceased trading it would cost the economy £200 million.

Contacts

Stephen Alambritis: 020 7592 8112 / 07788 422155
Sophie Kummer: 020 7592 8128/ 07917 628998 sophie.kummer@fsb.org.uk
Prue Watson: 020 7592 8121 / 07825 125695 prue.watson@fsb.org.uk

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