These platforms serve two very important purposes. First, they create new tourism products and experiences, therefore facilitating the growth of the UK tourism industry as a whole. The second main benefit is that they provide a cheap route to market for many of the 144,000 micro-business in the tourism industry. Whereas many of the large Online Travel Agent (OTA) sites such as Hotels.com and Booking.com charge small accommodation businesses fees of between 20-30%, sharing economy platforms typically charge fees of 3-5%, although the customer can pay more on top of the operators fee and the fee charged to the operator.
However, in delivering benefits to small tourism businesses and the tourism economy as a whole, these websites have allowed a large number of new entrants into the tourism industry. Many of these people are unaware of the regulations governing the operation of tourism accommodation properties or the tax implications of running a commercial business. There will also be others who, through the anonymous nature of using online platforms, view the rise in the sharing economy as an opportunity to generating income that which is hard for HMRC to trace.
Estimating the Size of the Problem
While it is not possible to put a figure on the level of tax avoidance, it is instructive to look at the size of the sector using London as an example. In London there are now over 49,000 properties being offered for tourism accommodation on the AirbnB website. While many of these will be people listing a spare room in their property, there are significant indications that a large number of these properties are being operated in a commercial manner.
- More that 40% (over 20,000 properties) are operated by someone who is listing more than one property.
- Over half the listings on AirBnB (25,000 properties) are offered to the customer on the basis of exclusive use – ie., there is no one living in the property.
- Almost 60% of the places on AirBnB (29,000 properties) are listed as being available for more than 90 days a year.
- The average property listed on AirBnB in London generates revenue of £8,700 per annum, well above the £7,500 limit of the Government’s Rent a Room scheme (it should be noted that as this scheme requires the owners of the property to be living on the premises, is not available to the operators of more than half the properties listed on the site)
In total, the operators of properties listed on AirBnB are generating revenue of around £430m per annum in London. As AirBnB only started UK operations in 2012, it should be relatively easy for HMRC to trace a large increase in the number of accommodation company registrations, and tax declarations from individuals, related to the letting of property for this purpose. If HMRC has not noted a significant increase on tourism accommodation businesses registered for tax purposes, or individuals declaring income from tourism accommodation rents since 2012, this would strongly suggest that there is a significant underreporting of tax in this sector.
Resolving the Problem
As mentioned above, a relatively small number of online businesses increasingly control the main route to market for all, but the largest branded hotel chains. For the smaller accommodation businesses, where the risk of tax avoidance is greater, the high fees demanded by OTAs means that the number of routes to market are even more limited with online platforms such as AirBnB and Trip Advisor controlling an ever-larger section of the market.
Online platforms have a very important role to play in ensuring that the businesses they host are tax compliant. This role could include the following:
- Providing people with information on their tax responsibilities when they list their property on the website
- Monitoring the revenue being generated by people listing properties on their site and informing them when tax thresholds have been reached
- Requiring people listing their properties to provide their tax details as part of the registration process (in a similar way to the concept of conditionality that HMRC has explored in relation to licenses). This would also resolve the issue of operators listing properties on a number of different platforms.
- Collecting taxation on behalf of HMRC (a model that has been introduced in Denmark).
With acknowledgement to Kurt Janson of the English Tourism Alliance for content provided, June 2018