Make your home work for you
OK, so letting paying guests into your home and cooking them a Full English every morning isn’t everyone’s cup of tea – and not every home lends itself to opening as a B&B.
If you have a spare room or two, though, and you live somewhere that people have reason to visit, operating a B&B can be fulfilling and more importantly, can over time lead to your property paying for itself. It can also give you the opportunity to live in a larger property than you could otherwise afford. Here’s how.
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It’s a business
Whatever scale your B&B offering will be, remember it’s a business. You will need to get to grips with certain pieces of legislation and other business requirements – but this shouldn’t put you off. For a start, try our Small Business Survival Guide
Business or domestic property
It may be a business, but there’s quite a critical exclusion for B&B establishments from business rates if certain conditions are fulfilled.
Most of the detail about business rates can be found here. Essentially, you need to satisfy the following requirements:
- you don’t expect to accommodate more than six people at the same time,
- the building is your own home, and
- the B&B business is secondary to this use of the building as a home.
If you meet these conditions you should get away with paying Council Tax only. If you don’t satisfy the conditions you will be liable to pay a business rate – but only on the part of the building that’s given over to the B&B operation.
The ability to avoid business rates is significant: all other kinds of accommodation for tourists – even self catering accommodation – are required to pay business rates.
Tax
There’s no way to avoid income tax on the money you make from B&B. There are, however, considerable incentives for anyone who decides to start up a B&B, including those valuable tax incentives that apply when you are self employed and running a business.
For example, you’ll be able to claim many expenses against your income, such as:
- water rates,
- council tax,
- utilities,
- repairs,
- some insurance,
- mortgage interest,
- professional fees,
- marketing and
- advertising expenses.
It’s important to remember though that only the proportion of these expenses attributable to the running of the B&B can be offset against your tax.
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Rent a Room scheme
The income tax you pay on B&B earnings can also be reduced by taking advantage of the government’s Rent a Room scheme.
This applies where owner occupiers let furnished accommodation in their main home. These conditions are normally satisfied by B&Bs.
Under the scheme, you can earn up to £4,250 tax free. HMRC has produced a helpful sheet explaining how traders like B&B owners can take advantage of the incentive.
The guide also clarifies how the relief can be claimed. If you only intend to rent rooms on a very small scale, you can use expenses associated with the rental, like the provision of meals and laundry, to ensure you are able to claim the maximum £4,250.
VAT
As with any business that provides goods or services, VAT is payable by B&B operators but you will also have to register for VAT if you exceed the threshold (currently £73,000).
Your mortgage
If you are currently on a normal residential mortgage, it’s unlikely that a small scale B&B operation should make any difference to your lender.
Nevertheless you should inform your bank or building society about your plans to embark on B&B.
The policy of lenders will differ and the question of whether you need to switch to a different product will vary from case to case - disclosure is advisable to avoid any surprises further down the line.
It’s also vital to inform your buildings and contents insurer so you can be sure you are fully covered in the event of a claim.
Government onside
One of the main tranches of the government’s new Tourist Policy, launched in March is to increase the proportion of UK residents who holiday in the UK to match those who holiday abroad each year.
This would mean around 4.5m additional domestic trips annually.
Such a policy can only be beneficial to the B&B sector and is likely to include initiatives like reduction in VAT on room rates (where applicable), and large scale marketing drives to encourage people to use B&Bs. Now could just be the time to take that step.
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Are you going to take the plunge?
Do you think B&B could be for you? Or have you already done it? Let us know in the comments box below.
More: Make money out of your home | Ten legal ways to dodge tax | Rent your way to a fortune