TAX ISSUES FOR BED AND BREAKFASTS

TAXWISE, B& Bs are quite unusual businesses as the operating expenses include food and the costs of running the household such as electricity, phone, insurance etc.

If the business is year-round then all the expenses of the house are claimed as a deduction in the annual accounts with an amount disallowed to reflect private expenditure of the family who own and live in the house.

Alternatively, where the business is small and seasonal then the actual expenditure on guests’ food and other inputs may just be taken as a fraction of the total household budget. Apart from the obvious inputs there may also be claims for expenses for training in languages, marketing, cookery and computers in order to grow the business.

The apportionment of expenses between business and private may come against the house owner if the house is sold. If, say, the apportionment were 90/10 then the Revenue will treat any Capital Gain on the sale of the house as 90 per cent being liable to Capital Gains Tax.

The Revenue regards the B&B business as a cash business and would be concerned that all sales were recorded.

Some years ago a tax audit on a B&B in Dublin revealed no guests on the first and third weekends of September, the GAA’s All-Ireland weekends. Needless to say, the owner was forced to admit that there were unrecorded sales on those weekends.

There is now no tax relief for home loan interest paid on the purchase of a private house. However, if the purchaser is going to use the house as a B&B then interest paid is tax deductible.

If the turnover in a B&B exceeds €37,500 per annum then they must register for VAT. The rate of VAT is now nine per cent. It can still be expensive to be VAT registered as the inputs do not contain much VAT, e.g. food is zero rated.

Where staff are employed then the B&B will have to register for and operate PAYE. This is unlikely to arise in the typical B&B where the family who own the house will do the work.

Expenditure by the owner of the B&B on capital works, such as extensions to the premises will attract a four per cent annual allowance as long as the premises are registered with Bord Fáilte or similar bodies.

Repairs to the premises are tax deductible in the same proportion as agreed with Revenue on the ratio of business to private use of the house where the owner lives in the house.

In relation to Local Property Tax (LPT) it will be due on the whole house including the B&B portion unless rates are paid on it. If rates are paid on the whole house then there will no liability to LPT.

Dermot Byrne, from the Vale of Clara, is a Tax Advisor based in Dún Laoghaire | Tel. 01 2808315