The UK tax guide for Airbnb hosts: breaking down the basics for 2023

While Airbnb offers a convenient way to generate extra income, it also comes with Airbnb host tax responsibilities that shouldn’t be overlooked.

Starting from April 2020, the UK tax authorities have clarified that all income from short-term rentals via platforms like Airbnb should be declared and taxed. Failing to comply with tax obligations can lead to significant penalties.

So, what do you, as an Airbnb host, need to understand about your tax duties? What happens in the background? Our guide aims to simplify and explain the tax essentials for Airbnb hosts in the UK, ensuring you stay informed and on the right side of the tax laws.

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Managing Airbnb taxes for your airbnb earnings with ease.

Earning through a short-let platform means you're running a business, and with that comes the responsibility of managing your Aibnb taxes in the UK. Fortunately, Airbnb has teamed up with Taxamo, a service in the UK that assists hosts in figuring out their VAT (value added tax) and what they need to pay in income tax.

Getting set up with Taxamo is straightforward. You'll need to share a few details about yourself and the properties you list on Airbnb. Plus, you'll provide information on your yearly hosting income, which can be summarized through snapshots of your Airbnb online dashboard or the yearly summary report Airbnb supplies. Taxamo uses this data to swiftly calculate your tax liabilities, often in under five minutes!

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Airbnb's new tax associate in the UK

Airbnb in the UK has teamed up with a new partner for handling taxes. They're now working with Taxify, a company originally known for its ride-hailing app in Estonia, which is now branching out into broader travel services.

Taxify will take on the role of tax agent for Airbnb hosts, responsibly collecting tax from guests at the time of booking and then submitting it directly to HMRC (Her Majesty's Revenue & Customs).

This partnership came into play after Airbnb's earlier suggestions on tax collection methods were rejected by HMRC, as they would have involved accessing hosts' personal banking information, breaching privacy regulations.

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Who takes care of tax payments, Airbnb or the hosts?

As an Airbnb host, you're part of the business structure. While Airbnb operates the platform, they also take on the tax filing for those hosting through their service.

Fortunately, a significant number of hosts have been able to bypass VAT charges by opting for the VAT Flat Rate Scheme, which we will explain below:

Airbnb hosts income tax rates explained

Your tax contribution is directly tied to your income levels. If your annual earnings are under £1,000, you owe no tax. For those making more than £1,000 but staying below the threshold for income tax (known as the personal allowance), you'll need to pay tax at a rate of 20% on the excess amount.

Should your total income surpass a personal tax allowance, which is £12,570 for the tax year 2023/24,  you'll be taxed at 40% on the excess amount.

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VAT for vacation rentals

VAT, short for Value Added Tax, is charged on what businesses sell. The rate of VAT you need to charge can vary depending on what your business does and if you're registered for VAT.

If you offer your home as a short-term rental, which means guests stay for less than six months, then the money you make is going to have a 20% VAT added to it.

The good part is that you can get this VAT back. This is done by filing an annual tax return where you report any expenses related to your rental business and then request a refund for the VAT you've paid on those expenses (this applies until April 2020).

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Tax obligations for private landlords 

If you're an independent landlord, it's necessary to pay income tax on the profits you earn from property rental. You're allowed to reduce your taxable profit by deducting expenses like repairs and maintenance, though these deductions can't exceed the rental income you've earned.

To ensure you meet your tax obligations, HMRC will expect you to:

• Complete a Self Assessment Tax Return (SA100) annually, which they'll send to you every January;
• Settle any tax you owe within 30 days of receiving their bill;
• Discuss and set up a payment plan with them if you're unable to pay the full amount on time.

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The art of financial records

Maintaining accurate records of all your financial transactions is crucial to demonstrate that your operations are within the law and that you're paying the correct tax amount. Failing to do so could lead to penalties from HMRC.

For those earning an income from property, it's essential to submit accurate tax returns and ensure that taxes are paid properly.

Remember, it's not just about declaring the money you've personally invested, but also any funds you've received, such as rental income. If the tax declared on your return falls short, HMRC might later request additional payment.

The primary taxes to be aware of include: Income Tax; Capital Gains Tax; Corporation Tax; and Stamp Duty Land Tax (SDLT) for land transactions above £500k, or between £0-£300k for properties with homes. Additionally, there are other contributions to consider, like National Insurance Contributions (NICs).

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UK tax requirements for Airbnb hosts

Your earnings from Airbnb are subject to income tax. If your hosting period is shorter than six months, you're entitled to deduct any expenses incurred within this timeframe. This includes scenarios where your property is damaged by a guest, regardless of reimbursement — you can deduct the cost as an expense on your tax return with HMRC.

For ease and accuracy in filing your taxes, consider using tax software like TaxJar or TurboTax. These tools are designed to help you stay on top of the varied tax laws and guidelines applicable to the country in which your rental property is located.

Additionally, it's essential to be aware of and comply with local short-term rental taxes and regulations, such as council tax or any community-imposed restrictions. These local charges can affect the overall tax you pay and the profitability of your Airbnb business.

Lastly, Airbnb hosts should make it a practice to regularly review their tax strategy, as tax legislation can evolve. Staying updated on these changes will help you avoid any surprises and ensure you're always meeting your tax obligations for Airbnb hosts in the UK fully and efficiently.

Your quick UK tax payment guide

If you're hosting with Airbnb in the UK, it's important to keep on top of your tax responsibilities. This means declaring your hosting income and submitting a self-assessment tax return for hosts annually. The deadline for paying any due taxes is March 31st each year.

When it comes to what you'll be taxed on, it's the profit that counts. In other words, you pay tax on any earnings that exceed your outgoings, which can include mortgage expenses. However, if your expenses are higher than your earnings and your property runs at a loss, there won't be any tax due for that time. You should note, though, that these losses might be offset against future profits – a useful tip that could have implications for your tax calculations in coming years.

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Permits, planning, and profit: your Airbnb hosting starter kit.

Before you start welcoming guests, it's important to know about the licensing requirements for short-term rental. By law, if you plan to rent out your space for more than 90 days in a year, you'll need to get a permit from your local council.

If you're looking to rent out your entire home, you'll be looking at applying for an HMO (House in Multiple Occupation) license. But if you're just renting out a single room and there are at least two people who call it their main home, then you're all set without one.

Ready to jump into the world of Airbnb hosting? Your local council's website is your go-to resource for the specifics. There, you'll find information on whether your property requires planning permission, the necessary insurance coverage, and the tax implications on your rental income. 

 Decoding capital gains tax for pro Airbnb hosts 

If you own a Furnished Holiday Let and it's not your permanent residence, you're eligible for some Capital Gains Tax breaks. Here's what's on offer: 

• A lower Capital Gains Tax rate of 10% instead of 28% when the property is sold under the Business Asset Disposal Relief scheme (previously known as Entrepreneurs’ Relief).
• Access to capital allowances for property fixtures, fittings and furniture.
• Using the Gift Hold-Over Relief scheme to avoid paying Capital Gains Tax. This is where owners sell or give away any assets in their business for less than they are worth so that they can help the buyer.
• The chance to defer Capital Gains Tax liability when you sell one Airbnb residence and buy another one via the Rollover Relief scheme.

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Need help with your Airbnb?

Nowadays you can find lots of information on the internet about handling your Airbnb taxes. For your convenience, we've curated a selection of useful websites that we believe are worth a visit:

1. UK Gov website – Self Assessment Tax Returns
2. Airbnb – Guidance on the UK taxation of rental income
3. Go Simple Tax Software – Self Assessment tool