Tax on Airbnb Lettings

It is likely that anyone who has not paid tax on Airbnb lettings is about to be found out. Airbnb’s own UK accounts for the year to 31 December 2019 include a statement that the company will share data with HMRC about the UK earnings of it’s hosts in the years 2017/18 and 2018/19.

Enquiries

The Airbnb data will allow HMRC to launch targeted enquiries into the tax affairs of anyone who has not declared their lettings income for 2017/18 and 2018/19. The deadline for opening an enquiry into a self assessment return for 2018/19 is 31 January 2021, if the return was issued and submitted on time. However, the discovery rules allow HMRC to go back up to 20 years in some cases. The data provided by Airbnb will certainly constitute a discovery for HMRC’s purposes, so up to 20 years will be open to enquiry.

HMRC has said it will address any issues over the payment of tax on Tax on Airbnb Lettings in 2021/22. This clearly indicates that HMRC expects to use its discovery powers to open up tax enquiries going back some years.

Declaring Airbnb Lettings Income

Airbnb’s own figures for 2017/18 say the annual earnings from Airbnb by a typical UK host is £3,100, (£3,800 in Scotland). This is within the room-a-room relief allowance of £7,500, so won’t generate a tax reporting obligation for a host who only lets out part of their main home. However, letting a second or third home that generates income in excess of £1,000 in a tax year will create a tax reporting obligation. The £1,000 limit is the trading and miscellaneous income annual allowance that can apply to letting income that doesn’t fall within rent-a-room relief.

If the landlord hasn’t declared their Airbnb income, and it is not covered by rent-a-room relief or the miscellaneous trading income allowance, it should be corrected urgently. Where the taxpayer has already submitted a tax return, and it is still in date for amendment, it should be amended without delay. The 2018/19 tax return can be amended by the taxpayer until 31 January 2021.

Where the tax on Airbnb lettings relates to earlier tax years the taxpayer should consider disclosing under HMRC’s let property campaign. This disclosure service has been running for over seven years, but it is only open to individuals who let UK residential property. It can’t be used to declare income from non-residential property or where the property has been let through a company or trust. Where the let property is located overseas the worldwide disclosure facility should be used and that has a higher penalty tariff.

The advantage in using the let property campaign to disclose is that the penalties charged for non-disclosure of tax on Airbnb lettings will be significantly lower than if the taxpayer waits for HMRC to contact them. If you can make full disclosure and payment of the taxon Airbnb lettings before HMRC spots there is a problem, the penalty can potentially be reduced to nothing.