London accountancy firm warns of host tax investigation

UK: Accountancy firm Grunberg & Co. has recommended that Airbnb and other short-term rental hosts review their tax affairs.

According to the firm, Airbnb’s agreement to provide Her Majesty’s Revenue and Customs [HMRC] with details of host income may lead to significant growth in tax investigations.

The company’s UK branch was served a £1.8 million addition to its 2019 taxes after HMRC initiated an investigation into its profits. In a statement following the announcement, HMRC announced it was working to improve collection in growing sectors, such as short-term rentals.

While in most cases no additional tax will be due, Grunberg & Co. recommends hosts still perform a voluntary disclosure. Doing so can reduce potential fines from the tax authority.

Alexander Kossoff, a partner at Grunberg & Co, told PropertyWeek: “According to previous reports from Airbnb, it estimates that the average annual earnings for a typical host are just over £3,000. Where someone uses the service to let part of the home that they live in they may be able to take advantage of the Rent-a-Room relief allowance of £7,500, which means they do not generate a tax reporting obligation below this amount.

“However, those hosts that rent out a second or third home, rather than part of their main home, cannot benefit from this same relief,” he added.

Disclosure is particularly advantageous for those who have omitted residential earnings in previous years. Experts at the firm say doing so efficiently could ensure hosts are only required to pay the outstanding tax amount.

The status of taxes and regulations for short-term rentals worldwide has been a source of debate, with countries such as Poland committing to raise digital taxes on the service. Many attempted to apply property taxes to the company before the Court of Justice of the European Union [CJEU] classified the company as a digital services provider late last year.

In response, the mayors of 22 European cities called for the tightening of EU regulations on short-term rental platforms. Most recently, the CJEU upheld French rulings providing municipalities with powers to regulate short-term rentals.