The Airbnb market in the UK is booming. 

Before the pandemic there was over 223 thousand active listings on Airbnb in the UK. If you’re looking to tap into this market or currently earn an income through Airbnb or a rental property, it’s important that you understand the tax implications. 

Airbnb earnings are not exempt from tax, and they will be added to your total taxable income. 

Unlike salaries that are reported by an employer, you will need to notify HMRC that you have untaxed income to report and then of the taxable profit each year.

Remember, you will need to submit a tax return if you are earning rental income – the deadline for filing online is typically January 31 each year, however you should always confirm with HMRC and you do have the option to submit a paper tax return – however the deadline will be earlier.

Make sure your taxes don’t go through the roof: benefit from Rent-a-Room Relief

You may be eligible for a separate tax-free allowance from your main income if you rent just a room through Airbnb. You will be eligible for Rent a Room tax relief if you rent a room from a property which is your main residence. 

If this is the case, you don’t have to pay tax on the first £7,500 you earn from this rental every tax year. If you’re letting jointly (for example, with a partner or friend), then it’s £3,750 for each of you. 

If your rents are more than this then you have a choice to deduct either the allowance or your real costs to work out the taxable profit.

Time to address expenses

For other rental properties you normally have a choice of claiming actual expenses or a flat rate deduction of £1,000 a year, per joint owner. 

Expense rules can be complex, particularly taking deductions for renovations and mortgage interest. 

A ‘like for like’ replacement of an item is normally allowable, but the rules treat some things differently, such as replacing a free-standing appliance with a built-in version. An easy mistake to make. HMRC guidance is available on-line in the Property Income Manual.

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Watch out for providing too many extra services. 

Providing changes of linen, cleaning for longer stays and offering meals could tip you over from renting a property to carrying on a trade, meaning National Insurance Contributions may be chargeable as well as income tax.

*Tim Walford-Fitzgerald is a Partner at accountancy firm HW Fisher