HMRC tax shock for Airbnb hosts - the clock is ticking…

A tax specialist says HM Revenue & Customs is mobilising its teams to probe Airbnb hosts - and he warns ‘the clock is ticking’.

Ian McMonagle, a tax specialist at Russell & Russell Business Advisers, says many Airbnb hosts still have a romanticised image of it as an informal community of individuals making pin money by letting out spare rooms.

But he warns: “Anyone in the UK who imagined that their enterprise would not be of concern to HMRC may well be in for a nasty shock from 31 January 2021 when the implacable investigative spotlight of the tax authorities will be turned to focus on them.”

McMonagle says the probe follows a deal last year in which a £1.8m settlement was struck between Airbnb and HMRC; part of the agreement was that the company would share income data for its 225,000 UK hosts for the tax years ending April 2018 and 2019.

McMonagle says: “For anyone in this category who has not – for whatever reason – made full disclosure of earnings, the clock is ticking.

“It goes without saying that, in an ideal world, the great majority of these 225,000 hosts would have provided full, correct and accurate information in their returns and would therefore have nothing over which to lose sleep. 

“But for anyone who suspects there may be some unintended discrepancy, there is a brief window of opportunity to amend their returns voluntarily before HMRC invariably gets in touch to ask why income has not been declared. Hosts who find themselves in this situation will have to turn to the online disclosure facility on the HMRC website.”

He insists the message is clear - act quickly and openly. 

“HMRC intends to start a campaign of investigation ... and it would be highly advisable to notify about any past income, rather than waiting for them to get in touch.

“Penalties for inaccurate returns range for 15 to 100 per cent, depending on the severity of the omission. For instance, the charge for a genuine error caused by, say, a transposition of a figure, would very much at the lower end. Deliberate evasion, in contrast, will be punished harshly.”

McMonagle says where the sums earned by landlords are low (the average annual rental earnings in the UK via Airbnb is thought to be just over £3,000) hosts may be covered by an annual letting allowance of £1,000. This would mean that, if their gross rental income totalled £1,500, they would only be liable for tax on £500.

“There is also the Rent-a-Room relief allowance of £7,500, which someone who uses the Airbnb service to let part of the home in which they live may be able to take advantage of. It would mean they would not generate a tax reporting obligation below this amount – but it should still be disclosed in their personal return” he says.

However, McMonagle is clear that all landlords earning from short lets must get their records and disclosures in order - and they have a strict deadline in which to do so.

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