By Graham Poles, tax partner, Armstrong Watson
Airbnb and holiday letting landlords who fail to pay the correct income tax will face scrutiny from HMRC and in certain cases could face prosecution and penalties of up to 30 per cent of the tax owed.
Amid a crackdown on holiday let owners who have failed to declare their income correctly, the Airbnb hosting platform has shared details of its users’ proceeds with HMRC, handing over hosts’ earnings data going back as far as 2017/18.
This is a hot topic for HMRC which is believed to have sent 800 letters since February to people it suspects have not paid enough tax, reminding them that they must disclose rental income from such platforms.
Now it has information direct from Airbnb, HMRC will be able to target those who have not properly disclosed this extra income.
Airbnb hosting has increased in popularity in recent years.
If you have a property you are considering listing for short-term letting, you should familiarise yourself with the detailed rules on the tax treatment of this income.
Rental income from Airbnb, similar hosting sites and direct sales is taxable like any other income.
The amount of tax you pay will depend on your other income and whether the property is held in joint names, perhaps with your spouse or partner, in which case their other income will determine their liability to tax.
However, some relief is available where you let a room(s) in your family home.
For example, if you rent one or more furnished rooms in the property you live in, you may get a tax-free allowance of up to £7,500 a year under the rent-a-room scheme.
This is halved if you share the income with your partner or someone else.
If you are renting a separate buy-to-let property that is not your main residence, you will not receive this tax-free allowance but will be taxed on your total rental income like any other business.
You may, however, be able to claim Property Allowance of £1,000 a year on the income (this cannot be claimed on the same income earned under the Rent a Room Scheme). Although, if your expenses are greater you can claim these instead.
If you received a letter from HMRC about your holiday let income and you believe you have correctly paid your tax, check your records to ensure you have all the documentation to support this.
Contact HMRC explaining why you believe you’ve paid the correct amount of tax but also be prepared to provide additional evidence.
It remains to be seen how many holiday-letting hosts will be caught and how much tax HMRC will be able to recover. However, the probe is a clear sign that HMRC is determined to crack down on tax avoidance and evasion.
