UK tax rules for serviced accommodation have changed more in the last two years than in the previous decade. The furnished holiday lettings regime has gone, Making Tax Digital for Income Tax has started, and local rules on short lets keep tightening. This guide explains what each change means for SA operators and property managers in plain English.
⚠️ Please note: this guide is general information correct as of October 2026, not tax advice for your situation. Rules depend on how your business is structured, so speak to a qualified adviser before acting. Book a free call with our ACCA-qualified team if you'd like us to look at yours.
1. The furnished holiday lettings regime has been abolished
Until April 2025, short lets that met the furnished holiday lettings (FHL) tests got special tax treatment. The regime was abolished from 6 April 2025 for Income Tax and 1 April 2025 for Corporation Tax. Former FHL properties are now taxed like any other rental property. The main effects for individual owners are:
- Mortgage interest is no longer fully deductible. Individuals get a basic-rate (20%) tax credit instead, the same as buy-to-let landlords.
- Capital allowances can't be claimed on new furniture and equipment. Existing pools can continue to be written down, and replacement furnishings relief applies to like-for-like replacements.
- Pension contributions: FHL profits no longer count as relevant earnings.
- Capital Gains Tax reliefs such as Business Asset Disposal Relief and rollover relief are no longer available for these properties.
If you own properties personally and let them as SA, review whether your current structure still makes sense.
2. R2SA vs managed: who reports what
How you're taxed depends heavily on your business model, which is why we always start by confirming it.
- Rent-to-SA operators rent a property from a landlord and keep the booking income. All booking revenue is your income and the rent you pay is a cost. Most R2SA businesses trade through a limited company.
- Management companies run properties on behalf of owners. Booking revenue belongs to the owner, and your income is your management fee. The owner reports the property income on their own return.
Mixing the two models up is one of the most common and expensive errors we see. Our article on R2SA vs managed property accounting explains how to set up Xero for each.
3. Corporation Tax for SA limited companies
Limited companies pay Corporation Tax at 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief in between. The limits are shared between associated companies, so if you run several SA companies, check how many are associated. Directors then pay Income Tax on salary and dividends they take out.
4. VAT on serviced accommodation
Short-stay accommodation is standard-rated at 20%. You must register once your taxable turnover goes over £90,000 in any rolling 12-month period, or you expect it to in the next 30 days alone.
- R2SA operators count the full booking value, including cleaning fees charged to guests, towards the threshold.
- Management companies that act as the owner's agent normally count only their commission and fees. If you act as principal, for example by contracting with guests in your own name, the full booking value may count. Your management agreements and booking terms decide which applies.
- Long stays: for stays of more than 28 days in a hotel or similar establishment, VAT after day 28 may be due only on the facilities element. Whether your units qualify needs checking case by case.
Being registered late means paying VAT out of income you've already received, so we monitor the rolling total every month for our clients.
5. Making Tax Digital for Income Tax starts in April 2026
From 6 April 2026, sole traders and landlords whose combined gross self-employment and property income is over £50,000 must keep digital records and send quarterly updates to HMRC using compatible software, followed by a final declaration. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. Limited companies aren't affected.
For SA businesses this means bookkeeping can't wait until year-end any more. Xero and QuickBooks both support MTD, and a monthly bookkeeping routine makes quarterly updates straightforward.
6. Council tax or business rates
In England, a self-catering property is assessed for business rates rather than council tax if it's available to let for at least 140 days in the coming year, was available for at least 140 days in the previous year, and was actually let for at least 70 days. Small business rate relief can then reduce or remove the bill. Scotland uses similar 140/70-day tests. In Wales the tests are 252 days available and 182 days let. Track letting days per property so you know which applies.
7. Local rules that affect your numbers
- London: entire homes can only be let short-term for 90 nights a calendar year without planning permission. See our London SA bookkeeping guide.
- Scotland: all short-term lets need a licence, and Edinburgh is a short-term let control area with a 5% Visitor Levy for stays from 24 July 2026. See our Edinburgh guide.
- Wales: higher council tax premiums can apply to second homes, and councils have been given powers to introduce a visitor levy.
8. Records to keep every month
- Every OTA payout report, showing gross booking value, commission and cleaning fees
- Rent, utilities, cleaning, laundry, consumables and maintenance by property
- Owner payments and management fees, kept separate from your own income
- Deposits, refunds and damage claims
- Nights let per property, for business rates and local limits
Limited companies must keep records for six years. Individuals must keep them for at least five years after the 31 January Self Assessment deadline for that tax year.
How Tally Stay can help
We're specialist serviced accommodation accountants and bookkeepers for operators across the UK. We keep your books monthly, reconcile every OTA payout, monitor VAT, prepare MTD-ready records and produce owner statements, so tax is always based on the right figures.
Frequently asked questions
Is serviced accommodation income trading income or property income?
It depends on how much service you provide. Most short-let income is taxed as property income, but businesses offering hotel-like services can be trading. Since the furnished holiday lettings regime ended in April 2025, the distinction matters more, so get advice on your specific set-up.
When do I need to register for VAT?
When your taxable turnover goes over £90,000 in any rolling 12-month period, or you expect it to in the next 30 days alone. Short-stay accommodation is standard-rated at 20%.
Does Making Tax Digital apply to my SA business?
From 6 April 2026 it applies to sole traders and landlords whose combined gross self-employment and property income is over £50,000. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028. Limited companies are not in MTD for Income Tax.