AirBnB Tax question re gross income

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    AirBnB Tax question re gross income

    sorry for the long intro, just trying to provide as much info/background as possible

    we have just started to offer our home as an AirBnB. we have a co host that runs it for us as the intention was (and still is) that it would be available when we are on holiday - in or out of the UK, we are retired, have a motorhome and a mobile home in France, so can be pretty nomadic if we want to be.

    as odd as it seems, we dont want to earn more than the tax free allowance of 7500 - on the basis that we dont want to both be pushed into the 40% tax bracket, because at that stage we dont think its worth offering our own home out for a return that we deem to be unacceptable. we own 6 other properties that are let to tenants an AST's, i have a healthy pension and most of the rental payments are proportioned to my wife.

    i have read lots of comments around whether we can actually claim the 7500 and am confident we can (unless of course someone points out something i have missed) - it is our main home, we live there between bookings and sometimes within the garden in our motorhome when the property is being used for airbnb

    my question relates to what is classed as Gross Income - our co host has moved us onto a scheme where the guest pays no fees to airbnb, but we pay airbnb 15% + VAT, to offset this cost, we of course need to charge a higher fee, to get the same return.

    all the money from the guest is paid direct to airbnb, who, within 7 days after the booking has ended, deduct their own fees, the fees for the co host and then pay the remaining amount direct to us.

    my question is - is our gross income the full amount paid to airbnb by the guest - even though we have no control over it and it never arrives in our bank account OR is our gross income the actual amount we receive from airbnb that actually does go into our bank account?

    if its the first case, then effectively we are paying tax (albeit using our allowance) on someone elses earnings, that never appear in our bank account and we never actually have control of the money to pay it out. whereas in the second case we would only be paying tax (again albeit using our allowance) on money actually paid to us that appears in our bank account?

    i am not trying to evade tax, i am more than happy to pay whatever tax i legally have to pay, but of course the more tax i can avoid is my preferred position !! my pension is taxed at source and we use a decent accountant already for our rental income, but she doesnt have a lot of (if any) experience with airbnb

    answers on a postcard please.......LOL





    #2
    I think the reason that you would get a lot of comments about whether you are eligible for the scheme is because I think it's not really knowable. The scheme is loosely defined - which I think is a deliberate attempt to make it as flexible as possible.

    I think the key issue for you is that you don't ever seem to be occupying the property while it is let - which seems to be an assumption made in the eligibility information, even if that's not specifically required as a qualification.
    And, given that the scheme is not available the property is "not part of your main home when you let it" and not available if the property is "your UK home and is let while you live abroad" I think you might have an issue.
    But it's hard to be definitive.

    There is a specific issue in the Tax Manuals (PM4012) "Income from the only or main residence cannot be within rent-a-room if the taxpayer receives rent from other properties and, on the facts of the case, all rents constitute one source of income", however the example given for the wider business assumes that the "other properties" are guest houses, rather than residential lets.
    But if your whole business is seen as one trading entity, you are not operating as a property investment business who, separately, offers a rent a room service.

    The problem will be that if HMRC does not share your view, they will not only want the tax that you haven't paid, they will probably see it as tax evasion and impose penalties.

    The income question again raises a further issue about whether this is an appropriate way of using the scheme.
    Usually, the answer would be simple, it would be your net income, post fees.
    But you can't deduct business expenses using the scheme, which is what the fees are, so you're placing quite a lot of weight on the route the money takes to get to you.
    If a guest is charged £100 for the use of the property but you only receive £85 because of the way that you have chosen to be paid, it isn't at all clear that you can be said to be earning only £85.
    In the same way that if a non AirBnB guest paid by credit card, the card fees couldn't be netted off.

    All of which isn't very helpful, but does tell me that you're probably trying to use a scheme in a way that doesn't really match what you're doing and the risk of being retrospectively being found to be wrong is high.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      thanks for the detailed view - it really is helpful to look at it from someone elses perspective, you may be entirely correct in your reading of it - which is why i was hoping for a response(s) similar to yours - so i could challenge my train of thought, so thanks !!


      I think the reason that you would get a lot of comments about whether you are eligible for the scheme is because I think it's not really knowable. The scheme is loosely defined - which I think is a deliberate attempt to make it as flexible as possible. Agreed

      I think the key issue for you is that you don't ever seem to be occupying the property while it is let - which seems to be an assumption made in the eligibility information, even if that's not specifically required as a qualification. My thoughts were that we DO occupy part of the property if we are in the motorhome in the garden. i agree it isnt a specific requirement - i believed that the letting period wasnt specifically the time it was let but the time it was available -ie 90 days - as we would only let it out during specific dates, we would return to the property in between lettings.


      And, given that the scheme is not available the property is "not part of your main home when you let it" and not available if the property is "your UK home and is let while you live abroad"- Not really sure it would be classed as living abroad if we were only there on a temporary basis I think you might have an issue.
      But it's hard to be definitive. - something that has just occured to me is that if we were subject to taxation (which up to around 9k would be at 20%) then perhaps we could claim the cost of having to move out while the letting takes place - not sure how that would be viewed but it appears to me to be a genuine expense to claim for?

      There is a specific issue in the Tax Manuals (PM4012) "Income from the only or main residence cannot be within rent-a-room if the taxpayer receives rent from other properties and, on the facts of the case, all rents constitute one source of income", however the example given for the wider business assumes that the "other properties" are guest houses, rather than residential lets.
      But if your whole business is seen as one trading entity, you are not operating as a property investment business who, separately, offers a rent a room service.
      i was unaware of that specific issue but perhaps it does offer some scope and needs looking at in more detail

      The problem will be that if HMRC does not share your view, they will not only want the tax that you haven't paid, they will probably see it as tax evasion and impose penalties.i dont intend going down that route, if necessary i will enter into correspondence with them and declare everything

      The income question again raises a further issue about whether this is an appropriate way of using the scheme.
      Usually, the answer would be simple, it would be your net income, post fees.
      But you can't deduct business expenses using the scheme, which is what the fees are, so you're placing quite a lot of weight on the route the money takes to get to you.
      If a guest is charged £100 for the use of the property but you only receive £85 because of the way that you have chosen to be paid, it isn't at all clear that you can be said to be earning only £85.
      Though i assume that if my gross was the full amount paid by the guest, then the costs incurred would be offset against that anyway as an operating cost?

      In the same way that if a non AirBnB guest paid by credit card, the card fees couldn't be netted off.

      All of which isn't very helpful, Actually i think your response has been very helpful, though potentially not what i was hoping! but does tell me that you're probably trying to use a scheme in a way that doesn't really match what you're doing and the risk of being retrospectively being found to be wrong is high. which is why i am trying to get information to do things correctly

      Comment


        #4
        Your "gross income" is the amount paid by guest to stay in your property. airbnb acts like a letting agent taking commission to find a short stay holiday tenant.

        The £7500 no claim allowance is for a lodger to stay in your home. and does not apply to "furnished holiday letting" which is reported on Tax Return SA105 . Your accountant can explain the tax rules to you..

        Comment


          #5
          according to the guidance



          The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.



          You’re a resident landlord if you let out part of a property which is your only or main home.



          If you only occasionally rent out part of your home (for example through short-term rental apps), check if you need to tell HMRC about this income. which is exactly what i intend to do

          If so, you’ll have certain rights and responsibilities:
          • you’re responsible for keeping the property safe and in good repair
          • a tenant or lodger doesn’t have the right to challenge the agreed rent
          • you may be able to earn £7,500 per year tax-free under the Rent a Room Scheme
          • you can give less notice to end a letting than if you rented out the property as a whole
          RENT A ROOM SCHEME How it works

          You can let out as much of your home as you want. that statement seems to suggest i can let every part of it out?

          The tax exemption is automatic if you earn less than £7,500. This means you do not need to do anything.




          I worked through the 'check if you need to tell HMRC section' and it suggests i dont need to inform them, so long as our joint income is below 7500 - which brings me back to where i started in trying to establish what constitutes gross income ?

          of course i will confirm with HMRC just to make sure

          one of the questions is

          To work this out, add up all the income you’ve received from renting your land or property in the last tax year. The tax year is from 6 April in one year to 5 April in the next year.

          Include money received from tenants for rent, utility bills and food. Do not deduct any expenses.
          if the guests money is paid to airbnb, does this refer to the money i actually receive after they have taken their cut?



          Comment


            #6
            Another consideration is CGT. If you make money from your home HMRC can decide that the 0% CGT rate is not applicable to the whole value - not sure of the details but something to check out.

            Comment


              #7
              Originally posted by jpucng62 View Post
              Another consideration is CGT. If you make money from your home HMRC can decide that the 0% CGT rate is not applicable to the whole value - not sure of the details but something to check out.
              i find it strange that they would allow or encourage airbnb and would then punish those who do it in their own home?

              Comment


                #8
                Originally posted by Gordon999 View Post
                Your "gross income" is the amount paid by guest to stay in your property. airbnb acts like a letting agent taking commission to find a short stay holiday tenant.

                The £7500 no claim allowance is for a lodger to stay in your home. and does not apply to "furnished holiday letting" which is reported on Tax Return SA105 . Your accountant can explain the tax rules to you..
                ive just spent a few hours going over figures to try to work out the best letting strategy that keeps me under the 7500 point. interestingly (well it is for me), if i did elect to be taxed on additional income under 7500 and then filed allowable expenditure costs, its working out pretty much neutral and even if it didnt 7500/5 is only £1500 allowable expenses would reduce this a lot further - so its no great issue really. just need to keep out of the 40% tax banding.

                i think there is also a further option for tax relief of £1000 but i need to check the detail of course and work out how it might affect us.

                Comment


                  #9
                  Originally posted by MisterB View Post
                  i find it strange that they would allow or encourage airbnb and would then punish those who do it in their own home?
                  Who is "they" in this sentence and why are they some kind of coherent unit?

                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment


                    #10
                    Originally posted by jpkeates View Post
                    Who is "they" in this sentence and why are they some kind of coherent unit?
                    sorry, i meant the royal 'they' as in her majesties inspector of taxes (before they changed their name of course to HM Revenue and Customs) and i admit i am foolish in believing in joined up thinking, the tooth fairy and that a UK Bank Holiday means sunshine for everyone ....

                    Comment

                    Latest Activity

                    Collapse

                    Working...
                    X