Short-term rentals are becoming more common across the UK, thanks to platforms like Airbnb. Business for many Airbnb owners is also booming, as the COVID-19 pandemic has reintroduced so many people to the delights of a domestic holiday versus a trip abroad.
With HMRC’s new focus on this industry, it’s more crucial than ever to be sure you’re following the rules and complying with everything that the tax authorities expect from a short-term rental landlord. Working with a specialist Airbnb accountant is a surefire way of doing that.
But that’s far from all we can help you with. Working with an Airbnb tax accountant team like Pearl Lemon Accountants can help you make more money from your property investments in general, and make a short term rental business the source of constant (fairly) passive income you had hoped it would be.
Airbnb’s landlords fall into two general categories: those renting out space in their own primary residence, often as a ‘side hustle’ and those who are renting out an entire property in which they don’t reside. These two business models are very different, but the fact is that both Airbnb host groups will benefit from the services of an Airbnb tax accountant.
Tax compliance is what compelled many of our current Airbnb host clients to begin working with us, and it may well be the reason you are considering hiring a specialist Airbnb accountant as well.
For many, tax compliance is a matter of urgency at this point. Never having done so previously, Airbnb disclosed the revenue data of 225,000 UK hosts to HMRC and local UK tax authorities in 2020, putting many hosts’ finances under scrutiny.
This is why Airbnb hosts must be aware of the most recent tax laws and regulations. However, attempting to handle this on your own can be difficult and perplexing at times. Which is where experts like Pearl Lemon Accountants can be so helpful.
Airbnb hosts are not legally categorized as self-employed workers, which may come as a surprise. As a result, hosts must follow HMRC guidelines that are slightly different.
Whether you’re renting out a room in your house or a full property, the rules are different. It would most likely be categorized as a Furnished Holiday Let in the latter situation (FHL). We’ll take a look at each one independently.
Whether you pay tax on this income, and how much tax you pay, is determined by a number of circumstances. This covers the type of property you rent out, how much money you make from it, and any tax breaks you may be qualified for.
To be classified as a Furnished Holiday Let (FHL), a home must meet the following conditions, according to HMRC:
FHLs offer numerous tax benefits. You will be entitled to capital allowance for property furniture, equipment, and fittings if your property is categorized as an FHL (this includes plants and machinery).
Furthermore, if your property is an FHL, you will be classed as a company for tax purposes. This means you’ll be able to claim permissible expenses as well.
Repair bills, utility bills, and cleaning fees can all be deducted from your allowable expenses.
The fact that, unlike buy-to-let properties, rental revenues from FHLs are considered “Relevant Earnings” is another tax benefit. But, exactly, what does that imply? For starters, it means you may make tax-advantaged pension contributions, which your future self will undoubtedly appreciate. Furthermore, revenues from FHLs are exempt from paying National Insurance Contributions.
FHLs are also eligible for mortgage interest assistance. This means you can deduct your mortgage interest from your profit, lowering your income tax bill still again.
All of this sounds like a lot to navigate, and it is. Consulting with an Airbnb tax accountant will help you understand it all, pay the taxes you are required to while taking full advantage of the tax breaks we’ve just covered (and more)
While you may not want to rent out your entire home, you can always choose to rent out a room on Airbnb if you have some additional space. Renting a room can be a terrific way to supplement your income, whether your children have recently left home or you’ve finally decluttered your spare room.
It’s crucial to remember, though, that even if you merely rent out a room in your house, the revenue you generate will still be subject to UK tax regulations.
Fortunately, the Rent a Room Scheme can help you save a lot of money on your taxes.
The Rent a Room Scheme, which was established in 1992, allows homeowners to rent out a portion of their home tax-free up to a limit of £7,500. In cases where there are joint proprietors, this sum drops to £3,750.
In April 2019, new rules were implemented to prevent anyone from abusing the system. According to the new guidelines, the scheme’s beneficiary must live in the property at some point while it is being rented out. So, if you go on a month-long holiday, you won’t be able to claim relief for the room you rent out because you weren’t living there at the time.
These and other tax considerations are all things we, as Airbnb tax accountants, can advise and assist you with.
Taxes aside, you got into Airbnb to make money. Working with an Airbnb accountant will give you access to expert advice when it comes to purchasing additional properties, forming an LLC to do so, managing your month-to-month income and expenditures and much more. We can even advise you on ways to save money on property management and maintenance and more.