11 Dec 2020

The government is reported to be considering applying VAT to the use of Airbnb and other short let platforms in a bid to fill its ‘black hole’ of missing revenue caused by Coronavirus. 

HM Treasury is issuing a consultation document calling for feedback from digital services – including the likes of Uber as well as Airbnb – on possible future taxation policies.

The Financial Times suggests there is concern at the highest levels of government that the so-called sharing economy means individuals – in the case of Airbnb, individual landlord hosts – who earn too little to hit a traditional VAT threshold. 

Currently businesses have to register for VAT only if they have an income of £85,000 or more per year.

However, UK digital platforms combined are forecast to have revenues of £140 billion a year by 2025 – much of it untaxed because it is secured by small-scale individual operators.

The Treasury consultation identifies five areas where it may introduce new tax regimes – short-term accommodation, so-called ‘collaborative finance’; passenger transport; on-demand household services and on-demand professional services.

Chancellor Rishi Sunak believes that as more people buy services from non-VAT registered providers through digital platforms he is being deprived of tax revenues needed to fund public services.

Currently if you are an Airbnb host letting a room you can earn up to £11,850 a year tax-free; above that, you should in theory declare income to HMRC. However, policing of the relatively informal arrangements of many short let platforms means it is difficult to monitor how many hosts abide by – or even know of – this requirement.

VAT on short lets appears to be commonplace in many countries.

Airbnb’s website says: “Airbnb charges VAT on its service fees for customers from Albania, Belarus, Chile, Colombia, Iceland, Mexico, Norway, Russia, Saudi Arabia, Serbia, South Africa, Switzerland, Taiwan, the Bahamas, the European Union, Uruguay, and the United Arab Emirates.

“In Mexico and Taiwan, VAT applies to the accommodation price plus any fees for other items, such as cleaning, extra guests, and guest service fees. For listings and Airbnb Experiences located in Mexico and South Korea, VAT applies to guest and host service fees (unless otherwise exempt).

“Airbnb is also required to collect VAT on its service fees from all users who contract with Airbnb China. In Japan, Japanese Consumption Tax (JCT) is applicable instead of VAT. In Japan, JCT applies to the hosts (via the “reverse charge” system) and the guests.

“In Australia, New Zealand and Singapore, Goods and Services Tax (GST) is applicable instead of VAT. GST applies to the hosts and the guests. In Malaysia, service tax is applicable instead of GST or VAT. Malaysian service tax applies to service fees for guests and hosts in Malaysia.”

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