Getting tax right for seasonal caravan and park home sites can be a tricky business. There’s lots to consider - including VAT, payroll and inheritance tax - so owners need to make sure they’re clued up on the dos and don’ts.
So, whether you’re a first-time park owner or have owned a park for many years and are looking to sell, what can you do to put yourself in the best possible tax position?
Whether your park is seen as trading or not trading by HM Revenue & Customs (HMRC) can make a big difference to your tax liability - especially when it comes to inheritance tax.
HMRC can either classify your park as being an investment business - where you receive your income through the rental of land - or a trading business. If you’re classified as an investment business, then you will have a 40% inheritance tax liability, whereas if you’re classified as a trading business then you will have no tax liability.
With this in mind, you will be in a much better tax position if your park is classified as a trading business - and there are many things you can do to become trading. For example, for those who have a pub on their park, running it yourself rather than renting it out will be more beneficial for inheritance tax.
Pitch fees can also be analysed to work out the proportions of rental income and service income. As a park owner, you will be in a better tax position if you provide services as part of your pitch fees, rather than caravan owners just renting the land off you. Examples of services include cutting the grass, providing cleaning services, and providing winter storage, or you could provide electricity or security services.
Our team of professionals can analyse your profit and loss accounts to break down your pitch fees and establish what is rental and what is non-rental. You will be more likely to be seen as a trading business if you have as much service income as possible, and your rental income is reduced to a small proportion of your pitch fees.
In addition to pitch fees, many holiday parks receive significant income from the sale of caravans. VAT rates on these kinds of sales vary depending on the type of caravan - for example, the size of the caravan and whether it has energy efficient features.
What’s more, if the caravan is second-hand then park owners can opt into the second-hand margin scheme, meaning you pay less than the standard VAT rate of 20%. Margin schemes tax the difference between what you paid for an item and what you sold it for, and you pay VAT at one-sixth on the difference.
For park owners who opt into the margin scheme, it’s also important to have the relevant supporting documents for the claim, so you can make your case as to why you’ve claimed at a different rate in the case of an enquiry.
If you’re a park owner looking for tax advice and support, our team of experienced professionals are here to help - whether it’s general VAT support, guidance on how to improve the trading status of your business or advice on selling your business.
We can also advise on payroll issues that affect park owners. For example, minimum wage legislation needs to be considered when employees live on-site and are provided with accommodation, so we can help to ensure you’re not falling foul of minimum wage rules.
For first-time park owners, we can also be on hand to provide recommendations about site licences and how you should be marketing your park. Some holiday parks have 365-day licences, which consumers wrongly believe means they can live there all year round. As a park owner, it’s important that you understand licensing rules and can advise your customers on how they can use their caravan.
If you’re a park owner and would like more information about our services, why not visit our service page or get in touch - we’d love to hear from you.
