In 2020, Airbnb UK, the successful UK arm of the online letting agency, included a declaration in its end of year 2019 accounts, that it will be sharing data with HM Revenue and Customs (HMRC), about the earnings of Airbnb hosts via its UK based website, for the years 2017/18 and 2018/19. Airbnb UK itself settled a tax dispute of its own in 2020, paying an additional £1.8m in tax to HMRC in corporation tax.
Tax specialists are suggesting the HMRC is assembling specialist teams to probe Airbnb hosts from 2021. They will be checking tax returns of individuals against the data that Airbnb have provided, to ensure that correct disclosure has been made of any earnings. Unfortunately, a lot of hosts have a lackadaisical approach about officially reporting the money made from letting their spare rooms, especially if they are not producing self-assessment returns. If you discover any inaccuracies, or have failed to disclose these earnings in your previous year’s tax returns, you can use the HMRC online website disclosure facility. It is advisable to notify them of any undeclared income, rather than wait for the HMRC to contact individuals.
Financial penalties for inaccurate returns, range from 15% to 100% of the amount undisclosed, dependant on the seriousness of the oversight. For example, the charge for an honest error, caused by something like the switching of digits on a return, would be at the lower end, but non declaration of income would involve the higher penalties, and interest on the amount.
Apparently, the average UK yearly rental earnings via Airbnb, is around £3k. According to a press release by Reuters, this income “lies within the rent-a-room relief allowance of £7,500, so would not 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”.
Confusingly, financial advisors are suggesting, that although this means that Airbnb hosts would not generate a tax reporting obligation below the £7.5k amount, it should still be disclosed in their personal return.
The agreement between Airbnb and the HMRC, include all the years that it has been operating. It seems HMRC, under their discovery rules, are permitted to pursue tax implication enquires up to 20 years ago, in special circumstances.
Airbnb provide guidance for landlords on their website, to veer hosts in the right directions for correct tax reporting, however, it falls short on actually how to declare the income and does not include any advice on capital gains tax.
Airbnb’s United States tax affairs have, over the last few years garnered scrutiny, as it is seen to have greatly upset the short stay category within the hotel industry, which pays a significant amount of tax on its income.
HMRC released a statement regarding the data sharing agreement with Airbnb “We have taken steps in HMRC to consider sectors, such as short-term property letting, where we may not be collecting the full amount of tax owed,”
“We appreciate this is a rapidly evolving sector and we are working in partnership with companies, such as Airbnb, to address the tax consequences of these changes, with a commitment to creating a level playing field for all.”