The UK staycation trend appears to be here to stay… or at least into the summer of 2022. This in turn is reflected in the ongoing predominance of Airbnb market presence across the UK, which perhaps also reflects landlords changing their view on short term lets.
Landlords have had to absorb increased costs in recent years relative to new legal responsibilities to tenants, plus seen significant reductions in tax relief on loan interest payments. It isn’t perhaps surprising to see a shift change, in terms of the attraction of higher returns from short term holiday type letting arrangements.
Going forward, the proposed New Deal for Tenants in Scotland, also has the potential to shift the balance of power more towards tenants, which could lead to some landlords again favouring short term lets as opposed to traditional tenancies.
Whilst the returns are usually better than long term lets, hosts of serviced accommodation should be aware of the increase in HM Revenue & Customs (HMRC) scrutiny around this type of rental income. HMRC have an enormous amount of background data regularly provided to them via various entities, but Airbnb previously confirmed that it would also share data with HMRC about the rental income earned by its hosts.
What are the impacts of Airbnb sharing data with HMRC?
Information supplied directly to HMRC by Airbnb, simply helps them to identify landlords that they may previously have missed. This forms part of a wider campaign by HMRC to target landlords who have failed to disclose their rental income.
HMRC have for some time now had the technology to enable the gathering of individuals’ data on property income and gains. HMRC are investing heavily in combating non-compliance in this area and have technology which can compare information held on the Land Register against Self-Assessment Tax Returns, as well as information provided by letting agents and property listing websites. Any discrepancies found will be flagged to the taxpayer.
This means that HMRC will need to raise enquiries into the affairs of taxpayers in order to deal with potential underpayments of tax in earlier tax years. Although HMRC have only one year from the date of submission of a return to raise an enquiry, where income or gains have been omitted, HMRC have additional powers to go back as far as twenty years.
What should landlords do now?
It is vital that any such landlords bring their records up to date and declare profits earned from property letting as soon as possible. Landlords who have started to let their previous long term accommodation to short term lets may qualify for Furnished Holiday Letting (FHL) status, which can be more beneficial in terms of taxation; allowing mortgage interest to be offset in full and counting as relevant earnings for pension contributions. There are strict criteria to be met however, and tax advice should be taken.
Enquiries raised by HMRC in respect of undeclared income resulting in unpaid taxes would be subject to much harsher penalties compared to those who make their declarations prior to any such enquiry.
Making use of HMRC’s disclosure gives clients an opportunity to bring their affairs up to date and get the best possible terms to pay the tax they owe.
Why is it important to take action?
HMRC enquiries can be in depth and time consuming which can result in significant professional costs being incurred, whether or not there is any actual under-reporting of income or tax loss. Getting in front of an enquiry, by making a disclosure, is normally a much quicker process than protracted correspondence with HMRC during the process of an enquiry.
