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Airbnb rentals: Are you paying over the VAT threshold?

| | Duncan & Toplis | 7 April 2022

Since its beginnings in 2008, Airbnb has made huge strides in the travel industry. By allowing property owners to rent out their spaces to travellers, there have been 14,000 new hosts joining the platform each month and over seven million listings worldwide this year, according to recent data.

The online hospitality platform has become an accessible alternative to holidaying and offers a unique - and often more affordable - travel experience for its consumers. The online service has also allowed thousands of people in the UK to open their homes, property lets and unique spaces to visitors, and brings a steady stream of rental income to hosts up and down the country.

However, as a host, there's a risk that your rental may take you over the VAT threshold without you even realising. Currently, the VAT threshold is set at £85,000, so once the taxable turnover reaches this level, you must register for VAT. However, in calculating your taxable turnover you must include your reverse charge expenses which include the fees from Airbnb.

What is the reverse charge?

When a supply is made by a UK business to a UK customer, the supplier charges VAT on that supply. The supplier pays this output tax to HM Revenue and Customs (HMRC) and the customer, if VAT registered, can usually reclaim the VAT back from HMRC.

However, when a service is received by a UK customer from a non-UK business - such as Airbnb - the value of the service goes towards the UK customer’s taxable turnover. Therefore, if the customer is VAT registered in the UK or liable to be VAT registered because of the value of the services received from a non-UK business, then the reverse charge applies to the UK customer.

The supplier does not charge UK VAT on the supply, and it falls to the customer to account for the VAT by reporting it as an output and an input on the same VAT return. Essentially the customer will treat the supply as if it has both made the supply and received it.

It’s vital to seek professional advice to ensure you’re meeting the legal VAT requirements.

What this means for Airbnb hosts

VAT businesses

As Airbnb is not a UK business, the invoices it issues to UK customers will not include UK VAT. You will therefore need to account for VAT under the reverse charge mechanism by reporting it as both an output and an input.

For example, if you have a £1,000 Airbnb invoice, you will account for £200 VAT on this 'sale' to yourself and recover the same £200 VAT if it relates to running a holiday home as a business. This is important because not all businesses receiving supplies from abroad would be able to recover VAT in full if the same services were provided by a UK business charging VAT, thus keeping competition fair.

Non-VAT registered businesses

When looking at the VAT registration threshold for non-VAT registered businesses, this means that the rental income, any other taxable income of the same entity and the Airbnb fees should all be considered.

For example, if your rental income for the past 12 months is £83,000 this may look like your business is trading below the VAT registration threshold. However, those businesses using Airbnb’s split-fee model, being a 3% service fee, would have the reverse charge expense on this of £2,490. This would need to be added to the £83,000 turnover, resulting in the breach of the VAT registration threshold.

Businesses using the host-only fee model, which typically has fees of 14-16%, are at risk of breaching the threshold based on the level of reverse charge expenses to be included within their taxable turnover at an even lower annual turnover of around £73,300 upwards.

If you’re currently a host for Airbnb and need support with your VAT affairs, please contact us to see how we can help.


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