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Cracking Down on Airbnb Tax Evasion: HMRC’s Latest Measures

Published by Merisha Shrestha
Posted Date: June 8, 2023 , Modified Date: April 17, 2024

The popularity of Airbnb has escalated in recent years, revolutionising the hospitality industry, and providing landlords with an opportunity to earn extra income.

However, this rise in short-term rentals has not escaped the watchful eye of HM Revenue and Customs (HMRC). With increasing concerns over potential tax evasion within the Airbnb sector, HMRC has intensified its crackdown on Airbnb hosts who may be underreporting their rental income and avoiding tax obligations.

Compulsory Airbnb Income Disclosure

In a sweeping move to tackle tax evasion within the UK's Airbnb sector, HMRC has launched an investigation which covers a span of six years of income information, aiming to shed light on owners who have been renting out their properties as short-term lets without disclosing their annual earnings.

To gather crucial data, Airbnb has been compelled to share income details of all UK hosts since the 2017-2018 financial year with HMRC. This information is said to be a ‘gold mine’ for HMRC.

Suspected Airbnb hosts who have failed to declare their rental earnings now face the possibility of a comprehensive 20-year tax investigation under the ‘Discovery Laws’.

Declare Your Short-Term Property Income

800 Letters Sent to Airbnb Hosts

Recognising the magnitude of the issue, HMRC has taken swift action, sending out 800 letters since February 2023 to hosts believed to have insufficiently paid their taxes. These developments follow previous Treasury estimates indicating that over 50% of owners were unaware of their obligation to pay taxes on their rental income.

While hosts have been made aware that their data is being disclosed to the tax authority, Airbnb has pledged to support them in understanding tax compliance and meeting their obligations. As part of its wider tax crackdown, HMRC is also targeting hosts and property owners on various online rental platforms such as Booking.com, HomeAway, TripAdvisor etc.

Sample Letter from HMRC to Landlords with Income From Short-Term Property Letting

If you are an Airbnb host or a landlord of short-term property letting and have not yet disclosed your rental income to HMRC, you may receive a letter similar to the one shown below:

OTM on Short Term Property Letting Income Sample Letter from HMRC
HMRC letter OTM on Short term Property

Did You Know?

You can earn up to £1,000 tax-free from rental income, known as ‘Property Allowance’ and if you rent out a room in your main residence, you can get tax-free allowance of £7,500 annually under 'Rent a Room Scheme'.

Voluntary Disclosure Through HMRC’S DDS

To encourage compliance, HMRC has provided Airbnb hosts with an opportunity to come forward voluntarily and disclose any previously undeclared rental income. By doing so, hosts can benefit from reduced penalties compared to those who are identified by HMRC's investigation.

1. HMRC’s Digital Disclosure Service (DDS)

HMRC's Digital Disclosure Service (DDS) is an online service to enable taxpayers to declare any unreported income or gains to HMRC easily. It offers a convenient and confidential way for individuals to disclose their tax obligations, calculate the amount owed, and settle any outstanding tax liabilities.

It is important to note that utilising the HMRC's Digital Disclosure Service (DDS) does not ensure immunity from penalties. The extent of penalties imposed is determined by several factors, such as the nature and seriousness of the non-compliance, the level of cooperation with HMRC, and whether the disclosure was prompted or unprompted.

Your DDS needs Guidance from the Best

2. Penalties

There are two types of penalty for undeclared income from Airbnb or short-term property letting:

Penalties for Failure to Notify

If you fail to notify HMRC of your tax liability within the appropriate deadline, you may face a penalty for failure to notify.

Type of behaviour

Unprompted Disclosure

Prompted Disclosure

Non-deliberate-within 12 months of tax being due

0% to 30%

10% to 30%

Non-deliberate-12 months or more after tax was due

10% to 30%

20% to 30%

Deliberate

20% to 70%

35% to 70%

Deliberate and concealed

30% to 100%

50% to 100%

Penalties for Inaccurate Returns

If you’ve already filed their tax return but failed to report your income from Airbnb or short-term property letting, you may face a penalty for inaccurate returns.

Type of behaviour

Unprompted Disclosure

Prompted Disclosure

Reasonable care 

No penalty

No penalty

Careless

0% to 30%

15% to 30%

Deliberate

20% to 70%

35% to 70%

Deliberate and concealed

30% to 100%

50% to 100%

Reduction in Penalties

The penalty for failing to declare income from Airbnb or short-term property letting can be lowered based on the level of disclosure provided. The amount of the reduction depends upon your cooperation with HMRC.

30%
Telling
40%
Helping
30%
Giving Access to Records

Short Term Property Letting's Penalty Calculator

Find out your penalty amount with our easy to-use Short-Term Property Letting Penalty Calculator

Conclusion

As HMRC intensifies its crackdown on Airbnb hosts suspected of tax evasion, compliance within the short-term rental sector is becoming increasingly critical. Hosts must ensure they accurately report their rental income and fulfil their tax obligations to avoid the severe consequences of non-compliance.

We understand the complexities of tax compliance for Airbnb hosts and recognise the importance of staying on the right side of HMRC regulations. 

Whether you've received a letter from HMRC or want to voluntarily disclose your rental income, our dedicated team is here to help. Contact us today to discover how we can provide you with peace of mind and expert guidance on your tax obligations.

Merisha Shrestha
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