The way in which we’re able to generate multiple streams of income from property ownership has changed. With platforms such as Airbnb, Booking.com and Cool Stays, landlords are turning to short-term let properties as a source of income and seeing great returns from doing so. While there is no guarantee in making a successful career out of this, with the right location, season and guests, landlords can make a decent profit on their investment.
The rise in popularity of short-term property lets has resulted in somewhat ‘unwanted’ attention from HMRC. They are now taking steps to crackdown and combat any potential tax discrepancies within the sector. When the 2019 financial statements were published for Airbnb, they included a note that the company would be sharing data with HMRC. Airbnb have now been forced to provide this information directly to HMRC. This will help HMRC to identify those who have earning from such properties and who haven’t been declaring it.
What are the impacts of Airbnb sharing data with HMRC?
HMRC have for some time now had the technology to help them gather individuals’ data on property income and gains, but Airbnb has now provided this information directly to HMRC.
HMRC have been working through the information to identify individuals who they suspect have undisclosed income earned through Airbnb, and who have therefore not paid enough tax.
Although HMRC only have one year from the date of submission of a tax return to raise an enquiry, where income or gains have been omitted, they have additional powers to go back as far as twenty years. This means that HMRC will need to raise enquiries into the affairs of taxpayers in order to deal with potential underpayments of tax in earlier tax years.
Since February 2023, HMRC has sent 800 letters to individuals who they suspect have not declared their Airbnb income correctly.
What should landlords do now?
It is vital that landlords bring their records up to date and declare profits earned from property letting to HMRC as soon as possible. Enquiries raised by HMRC in respect of undeclared income, resulting in unpaid taxes, would be subject to much harsher penalties compared to those who make their declarations prior to any such enquiry.
Making use of HMRC’s Let Property Campaign disclosure gives clients an opportunity to bring their affairs up to date and get the best possible terms to pay the tax they owe. AAB can assist with this process.
Why is it important to take action now?
HMRC enquiries can be in depth, and time consuming which can result in significant professional costs being incurred, whether or not there is any actual under-reporting of income or tax loss.
Getting in front of an enquiry by making a disclosure is normally a much quicker process than protracted correspondence with HMRC during the process of an enquiry and can have a more favourable outcome in terms of any penalties levied.
What does The Future hold?
There is an ongoing Government consultation seeking views connected to the proposed requirement that planning permission is needed to let out properties in England, particularly in tourist hotspots. This is in addition to a further consultation to introduce a short term lets registration scheme. Both are connected to the Levelling-up and Regeneration Bill, with a view to providing visibility to local authorities to help them manage the impact of high numbers of short term lets.
It is therefore even more important, that landlords are on top of their ongoing reporting requirements and have a full awareness of available tax reliefs and deductions available to them to mitigate their tax exposure.
How can AAB help?
At AAB we understand the complexities of navigating tax obligations and staying up to date with the latest regulations. HMRC’s intense scrutiny of short-term property landlords just highlights how important it is not only to be aware of and understand but also to comply with the tax obligations. We are on hand to support our clients to successfully navigate the complexities of tax compliance in the short-term property space.
If you are an Airbnb landlord concerned about your tax obligations or if you’ve received one of HMRC’s letters we are here to support and offer guidance. Natalie Butler, Jen Kinnear or another member of our Private Client team are ready to help you navigate the complex and challenging landscape of tax compliance.