HMRC has launched an enquiry into the tax affairs of individuals who rent out property through the online marketplace, Airbnb. Since February this year, HMRC is reported to have sent 800 letters to individuals suspected of underpaying tax on their rental income and is poised to send thousands more as the investigation continues.
If you have received a letter relating to Undeclared Income or are concerned about your tax position regarding income made from renting your through Airbnb or any other means, speak to us. We have assisted a considerable number of clients facing HMRC Investigations or who are unsure of their tax liability, and will provide concise, straightforward advice to help you understand your position and the best way forward.
We offer an initial fixed price consultation to discuss how complex an issue you may have and how to initially proceed as there are often short deadlines. It is likely there will be a period where additional information will need to be obtained with which to challenge HMRC and in these situations we are also used to working alongside company accountants or external accountancy firms. If you would like to have a confidential discussion with a member of our team in relation to an undeclared income concern please either complete an Online Enquiry or call us on 01908 414990 and we will be pleased to help you.
What is the tax position regarding income made through rental property?
It is important to understand that any income made from renting out your property, or even one room, through Airbnb or otherwise, is not exempt from tax. Whilst some individuals may deliberately fail to disclose this income to avoid the tax implications, many more simply do not appreciate that tax is due since they do not class the rent received as an ‘income’, but merely as a contribution to the mortgage.
There are exceptions, but in most cases, you are obliged to pay tax on the sums received as rental income. The onus is on you to ensure you are aware of the taxation position and to notify HMRC of your rental income by completing a tax return, and then paying any tax due.
What is the basis of HMRC’s current investigation into income made through Airbnb?
The rental market has always been an area of risk for HMRC. Thousands of people each year fail to account for the income made from renting out a room or a property, either deliberately or through mistake or misunderstanding. The advent of online rental marketplaces like Airbnb has exacerbated the situation, and HMRC have a real concern that significant amounts of tax are not being paid.
As a result, HMRC have obtained the earnings data relating to all of Airbnb’s users, dating back to the tax year 2017/2018. If that data shows any underpayment of tax, HMRC may investigate an individual’s affairs over the past 20 years. The exercise represents a seismic shift in HMRC’s approach to rental income. In the past, it has taken a passive approach, encouraging voluntary disclosure of income by property owners. Now, however, it is being far more proactive and actively pursuing any individual suspected of underpaying tax. This action is expected to uncover somewhat of a goldmine for HMRC, and many property owners are understandably extremely concerned about its implications for them personally.
What are the penalties for those found to have underpaid tax on rental income?
As well as being forced to make good any unpaid tax, property owners face substantial penalties of up to 30% of the amount due and, in the most serious cases, potential criminal prosecution. The good news is that these penalties are case-specific and are unlikely to be given to those who have innocently underpaid, being reserved for anyone found to have acted dishonestly. You can mitigate the likelihood of facing such penalties by voluntarily disclosing your rental income through HMRC’s ‘Let Property’ campaign. The campaign allows landlords who have not disclosed their rental income to do so now, and to pay the tax due within 90 days.
How can we help?
If you have received a letter from HMRC regarding the income made though Airbnb, you must not ignore it. Facing the issue head-on will give you the best possible chance of avoiding any significant penalties. We will review HMRC’s findings and advise on the best course of action. We will liaise with HMRC on your behalf and aim to reduce the possibility of HMRC taking punitive steps against you.
If you have not yet received a letter, you should not take this as an indication that there are no problems with your tax affairs. The HMRC investigation is at an early stage and it is likely to take some time for the data relating to all Airbnb users to be thoroughly investigated. It is far better to review your tax position before HMRC contact you, and take any requisite action voluntarily. Further, the investigation into Airbnb hosts represents a wider crackdown on the rental market in general, so even if your property is rented through other means, it is advisable to ensure your affairs are in order and take any remedial action required. Speak to us if you have concerns. We will review your position and, if you are found to have underpaid tax, formulate a strategy to swiftly regularise the position and mitigate any consequences.
Altion Law are specialists at advising and representing parties who have received HMRC investigations. If you would like to have a free confidential discussion with a member of our team, please either complete an Online Enquiry or call us on 01908 414990 and we will be pleased to help you.