Airbnb’s success is truly amazing. The story began in 2007, when the first two Hosts welcomed three guests to their San Francisco home. Airbnb now has more than 4m Hosts worldwide who have welcomed more than 1.5bn guests in more than 220 countries.
There are hundreds of thousands of active UK Airbnb listings and the most popular visitor locations are London, Edinburgh, Glasgow and Manchester. In 2022, the typical UK Host was reported to earn just over £6,000 by renting their space on Airbnb, with more than a third doing it to help them cope with rising living costs.
Many report their taxable Airbnb income to HMRC as required. Others, whether knowingly or not, fail to report their Airbnb income, and are therefore guilty of tax evasion. That could be about to come to an end thanks to an HMRC crackdown that began in 2023 but will continue in 2024 and beyond.
Here’s the lowdown from Mike at GoSimpleTax.
HMRC investigation into Airbnb income
Seeking to find UK Airbnb Hosts guilty of tax evasion, HMRC has launched an investigation into income going back to 2017-2018. As explained on the company’s website, Airbnb is required by law to provide “a limited amount of data about transactions that take place on the Airbnb platform to HMRC when requested”.
Airbnb will share with HMRC “data for all transactions on the platform during the 2017/18 and 2018/19 tax years”, in relation to a “listing in the UK or a listing owned by a Host that’s required to pay tax in the UK”. The sharing of Airbnb income data for subsequent years seems inevitable, with Airbnb stating: “We will provide data if HMRC makes similar requests for information in future”.
HMRC data requests to Airbnb have already generated many leads, with the UK tax authority having sent out hundreds of “nudge letters” in 2023 to Hosts suspected of not paying tax on their Airbnb income. Many more letters look likely to follow. HMRC is reported to also have in their sights those advertising properties on online rental platforms such as Booking.com and Vrbo.
What can happen if you haven’t declared Airbnb income?
If you haven’t declared your Airbnb income, if discovered, the penalty you pay will be determined by whether your actions were deliberate or not.
- If you unknowingly made a genuine mistake, although you’ll have to pay any tax due, you won’t have to pay a penalty.
- If you didn’t take reasonable care, you may face a penalty of up to 30% of the tax due, plus the tax you owe.
- Deliberate errors can lead to a fine of 20%-70% of the tax due, plus the tax you owe.
- If you knowingly made an error and sought to deliberately conceal it from HMRC, the penalty is 30%-100% of the tax due, plus the tax you owe.
Need to know! HMRC can open a “discovery assessment”, which is an inquiry into the last four years of your tax affairs (it goes up to six years if you didn’t take reasonable care). If you’ve been guilty of gross dishonesty about your tax affairs, an HMRC investigation can go back 20 years.
What should you do if you haven’t been paying tax on Airbnb income?
If you haven’t been paying enough or any tax on your taxable Airbnb income, you need to act immediately if you are to minimise the penalty.
- HMRC’s Let Property Campaign enables landlords who owe tax after letting out residential property in the UK or overseas to “get up to date with their tax affairs in a simple way and take advantage of the best possible terms”.
- First you must notify HMRC that you want to take part. Then you disclose all income or gains you have not previously told HMRC about and state which penalty you believe you should pay, before making a formal offer to pay tax due and then paying it. Throughout, you must cooperate fully with HMRC, providing any information that HMRC requests.
- HMRC will take into account how cooperative you’ve before deciding what action to take. If you have deliberately hidden information from HMRC, you’ll pay a higher penalty than if you have made a simple mistake.
- Visit the HMRC pages of GOV.UK for more information on the Let Property Campaign.
Paying tax on Airbnb income: the basics
- Income Tax is often payable on Airbnb income.
- Whether you pay tax on your Airbnb income and how much if so is determined by: whether you’re renting out an entire property or just a room in your house; how much income you earn from Airbnb; and how much taxable income you earn from other sources.
- If you live in the property and earn less than £7,500 a year from hosting on Airbnb, thanks to the Rent-a-Room scheme, no tax is payable.
- If you earn more than £7,500 a year, you’ll need to report it to HMRC via a Self Assessment tax return, but you’ll only pay tax on the amount above £7,500.
- You must only rent a single furnished or unfurnished room in a property that is your main residence.
- If you own the property with someone else, the Rent-a-Room allowance is split, giving each of you a tax-free allowance of £3,750 a year. If you claim relief via the Rent-a-Room scheme, you can’t claim tax expenses as well, so you’ll need to work out which option is more tax-efficient for you.
- Visit GOV.UK to learn more about the Rent-A-Room scheme.
- If you host a second property or a property that you don’t live in on Airbnb, you can earn up to £1,000 tax-free each year. This is your property allowance.
- Any income over this amount can be subject to Income Tax, determined by what income band your total income places you in.
- The Income Tax bands for Scotland can be seen on mygov.scot, while the Income Tax rates for the rest of the UK are on GOV.UK.
- Wherever you live, you don’t pay tax until your total income goes over the personal allowance threshold (£12,570 for the 2023/24 tax year).
- If you’re earning taxable income from a property that you do not own which you’re a Co-Host on a listing, you’ll still be taxed as if you owned the property.
- If you need to pay tax on your income as a Host on Airbnb, each year you’ll need to fill in a Self Assessment tax return.
Need to know! If you have to pay expenses exclusively to run your Airbnb business, you can deduct them from your income, which will help to reduce your tax bill.
Common examples include general maintenance and repairs, water rates, council tax, gas and electricity, cleaning, accountancy fees, rental commission, insurance.
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