HMRC’s Recent Investigation Into Airbnb Landlords

The government believes there are approximately 700,000 incomes of people who rent out second homes that are not being reported. This is equivalent to around a third of landlords in England and Wales not paying tax…

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Last Updated: 5th December 2023

The government believes there are approximately 700,000 incomes of people who rent out second homes that are not being reported. This is equivalent to around a third of landlords in England and Wales not paying tax on their rental income.

But that’s all changing – HMRC has launched a specialist team to track down those that aren’t declaring their rental profits and penalise them. To avoid this you must:

  • Record your property income
  • Submit your tax return
  • Pay your tax bill (including any Capital Gains Tax you may owe)

Here, we cover HMRC’s latest investigation into Airbnb landlords and highlight how you can avoid any unnecessary penalties.

What is undeclared income?

In October 2020, Airbnb released details of the income of 225,000 people who let out their residential properties on the site. It found that many had undeclared income.

Undeclared income is any taxable earnings you have that you haven’t told HMRC about. You inform HMRC of your earnings through your annual Self Assessment tax return. This process allows the government work out your tax liability. You’ll then pay Income Tax and possibly National Insurance.

By not reporting your taxable earnings, you are avoiding paying what you owe – and that has more than just tax implications…

How will HMRC penalise me?

If you’re an Airbnb landlord and you’ve not been paying your dues, your best course of action is to let HMRC know. You’ll be given 90 days to calculate and pay your bill. By doing this, your penalty will be reduced.

Fail to tell HMRC, and you’ll be expected to pay 100% of the unpaid tax, plus interest, along with a fine. As law allows them to go back 20 years and even launch a criminal investigation, there is a significant risk to landlords hiding the earnings of their rental business.

How can I avoid being investigated?

Tell HMRC what you owe and then pay it. Regardless of what anybody tells you, tax avoidance schemes often don’t work and instead result in paying more tax later down the line. You should come forward with your earnings and only look to reduce your tax bill through tax relief.

Some of your rental business expenditure can be claimed as expenses. For example, if you replace any furniture that has been subject to wear and tear and has reached the end of its useable life, you can claim that cost as an expense.

If you own a property with a buy to let mortgage, you used to be able to claim on your mortgage interest under a scheme known as mortgage relief. This has since ended instead you get a tax credit for residential finance costs which is restricted to 20% tax relief against any profits, although you are still entitled to the Rent a Room relief scheme as an alternative if renting a room in your own home.

This allows owner-occupiers and tenants to receive tax-free rental income if you provide furnished accommodation in your only and main home. This is particularly useful to Airbnb landlords who also live in the property.

Where can GoSimpleTax help?

At GoSimpleTax, we understand the work that goes into being a landlord. What’s more, we appreciate that it’s hard to devote yourself to your property while simultaneously staying aware of every change to tax legislation.

That’s why we support landlords through their tax return. With our software, you can log all your income and expenditure throughout the tax year before submitting your complete forms directly to HMRC. The best bit? We alert you to any tax relief you may qualify for, ensuring every potential allowable expense is claimed.

Interested in boosting your rental income and simplifying your tax responsibilities? Sign up today.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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