Tax

The ‘Airbnb allowance’: rent a room, keep some cash

In the January/February issue of Accounting Technician, I looked at the rise and rise of the gig economy in the UK.

This time, I want to look at the other new kid on the block: the sharing economy. So what is the sharing economy and how is it different to the gig economy?

Well, there’s been much discussion about the difference. But the term ‘gig economy’ is now widely taken to refer to a model whereby workers take up a series of short-term self-employed ‘gigs’. The sharing economy is arguably different, involving people sharing resources (assets) through ‘disruptive technology’. In simple terms, the sharing economy involves people renting their underused assets to each other.

Let’s have a look, then, at probably the most famous business in the sharing economy, Airbnb, which has become a rampaging leviathan since its birth in San Francisco in 2008. The key issue is that technology (smartphones and apps) has reduced transaction and set-up costs so that sharing assets – rooms in your private house – has become much easier and cheaper.

The other important point is that big data has increased the pool size of providers and takers, so Airbnb is quite literally a worldwide peer-topeer business, offering unimaginable choice for someone in Bradford, say, who wants to rent a room in the Pacific Northwest of the USA.

So sharing sites allow individuals to offer ad hoc services, such as car rental, parking spaces and room hire, when it suits them. But what about the tax angles?

Sharing with the Taxman

The first thing to note is that all trading and property activity is prima facie taxable. However, in the 2015 Budget, the chancellor announced that he would introduce two new £1,000 entrepreneurs’ allowances for trading income and property income from April 2017.

I’m not going to talk too much about the £1,000 trading allowance for so-called ‘eBay traders’ – that’s not really the sharing economy. We’ll deal with that allowance on our courses this year and in other articles. But I do want to talk about the new £1,000 allowance for property income.

First, let’s review what both of the allowances have in common. They are both income, rather than profit, allowances. So, if you have income from either source, the rules are:

  • Up to £1,000 of income: there’s nothing to report and nothing to pay. Easy.
  • If the income is over £1,000, you have a choice: you can either ignore the £1,000 allowance and proceed as normal – gather all your income on an arising basis and take off all of your expenses, also on an arising (accruals) basis – or you can gather up all of your income and ignore all of your expenses. Then you can deduct the £1,000 income allowance from your total income and you will be taxed on that.

Neither of the allowances are for partnerships or companies.

So the £1,000 property allowance will have some limited appeal – maybe to those who receive low-level Airbnb room income or parking space rent. I don’t see it appealing to a conventional buy-to-let landlord.

There’s one other point, too. If you’re taking advantage of the rent-a-room allowance (£7,500 since April 2016), you cannot also use the £1,000 property allowance. I am a fan of the rent-a-room scheme, but the point to note is that the renters must use the same front door as you do. It will not apply to someone who rents out an annex or, say, a small flat over a garage complex.

So there are options out there for budding sharers, especially those who earn enough to find themselves with an unexpected tax bill.

Michael Steed is co-chairman of the ATT's tax Technical Steering Group and columnist for Accounting Technician magazine.

Related articles