The VAT Treatment of Lettings Income such as “Airbnb”

Andy Dawbarn profile image

Andy Dawbarn, Partner, Head of Indirect Taxes

Andy joined Wilkins Kennedy in 2010, having spent over thirty years in VAT, the first five of which were with HM Customs & Excise (as was) and the latter years have been spent in practice.

Nov. 25, 2019

 

The increase in popularity of Airbnb and similar accommodation providers raises the question of how these kinds of activities should be dealt with from a VAT perspective.  Andy Dawbarn, Indirect Taxes Partner at Wilkins Kennedy, considers the VAT implications arising for users of these types of sites …

In general, the supply of accommodation - whether commercial or residential - is exempt from VAT, but, as so often with VAT, there are exceptions to this rule:

  • Firstly, for supplies of commercial land and property there is an ‘option to tax’ available which allows the person who holds an interest in that property (or land) to add VAT. By doing so, any directly related VAT on expenditure may be reclaimed.
  • Secondly, for supplies of residential property there is no similar option available, instead it will depend on whether it is a standard letting or one of ‘holiday accommodation’, with the former being exempt from VAT, the latter being taxable at the standard rate (currently 20%).

However, it can be difficult to apply any objective test to confirm the correct VAT treatment.

One key issue is how the accommodation is ‘held out for sale’, and whether it is clear to the recipient that they are looking at a supply of holiday accommodation.  ‘Holiday accommodation’ would essentially cover the supply of a building, beach hut or chalet, caravan, houseboat or tent that is made available (and advertised as such) for holiday use.

Another indicator is whether the letting activity is essentially ‘passive’.  Once a lease is signed, residential letting will normally involve very little activity on the part of the landlord or his agent, if one has been appointed.  If it is more active then it is likely that VAT would apply to income received.

There is a clear contrast between a passive letting where holidaymakers simply collect a key and are left to themselves, and a case where the proprietor or their staff are permanently on site to cater for guests’ needs. It can still remain difficult, however, to determine whether a supply of short term letting qualifies for exemption.  Whilst there is no legislated minimum period to determine the VAT treatment of lettings income, HMRC can take the view that any short lettings are, effectively, holiday accommodation and will be looking to assess for VAT due.

UK VAT Registration

This said, with a compulsory registration VAT threshold of £85,000 per annum of taxable turnover it is unlikely that most Airbnb and similar operators will exceed this, making VAT registration, on the face of it, a rare requirement.

However, a particular pitfall here is that, since December 2015, there is no VAT registration threshold for businesses which do not have a fixed establishment in the UK. 

If an operator owns a property in the UK but has no ‘office’ here, then it highly likely that it will be required to register for and account for VAT on any income received.  Whilst this may not all be bad news - once registered, VAT incurred on any associated costs would be recoverable.  However, VAT registration in this case would equate to a reduction in earnings/erosion of profit margin,  and would best avoided if at all possible.

This can be a complex issue, and one worth asking for expert advice.  For further information, please contact me or a member of our specialist VAT team who can advise you.


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