An overhaul of EU rules will affect Airbnb landlords and agents for villa owners across Europe as VAT will be chargeable on all rentals
The EU’s VAT in the Digital Age programme will have a profound impact on the travel and hospitality sectors, especially for platform operators who host rental apps ranging from accommodation providers like Airbnb and Booking.com, to taxi hailing apps including Uber, Freenow and Gett.
Any owners of overseas property who rent out their foreign houses and apartments on third party platforms from 2025 will be caught by the rules, regardless of where they are resident. In future, VAT charges will be passed on to owners by the platform operators so an average 20% VAT should be factored into running costs of rentals.
EU estimates indicates that up to 70% of accommodation suppliers using a platform are not registered for VAT. This means operators will have to collect the VAT registration details of all registered providers and notify authorities of VAT numbers where applicable. In addition, they will also have to notify details of all non-registered owners with tax authorities in individual member states.
‘Forthcoming EU legislation means intermediaries and agents operating platforms used to book accommodation or passenger transport in the EU will need to pay VAT on the underlying supplies,’ said Sue Rathmell, partner and indirect tax specialist at MHA. ‘The EU Commission hopes to bring these changes into force on 1 January 2025.
‘These changes won’t just apply to the likes of Airbnb, booking.com and Uber.
‘Businesses that act as agents for villa owners in Spain and operate an online booking system or airport transfer platforms like hoppa.com will also be caught in the net.’
The EU plans to introduce the rules to create more tax equality as hotels and standard taxi services are all charged VAT on sales, while due to the complexity of VAT registration for individual providers of accommodation and cab services there is normally no tax charge.
Going forward, the platform operator will be responsible for paying the VAT on behalf of third party providers as they are the underlying supplier.
This means that if the accommodation owner or transport supplier is not VAT registered in the country where the property is, or where the transport is provided, then the platform must pay the VAT on the supply direct to the tax authorities.
It is also important to note that simply not being registered for VAT will not give the provider a free pass.
‘If the underlying property owner or transport operator is VAT registered, then the intermediary is not off the hook,’ said Rathmell. ‘They must still provide the supplier’s information and details of the supplies to the tax authorities.
‘These changes will create extra work for platform operators, but it is hard to argue with them in principle as they are all about creating a level playing field. The EU Commission thinks the status quo is unfair on businesses like hotels or private taxi firms.
‘Companies like Airbnb compete directly with the hotel sector and Uber competes directly with private taxi firms. In the case of Airbnb and Uber VAT is often not collected on the underlying rentals and transport because the end suppliers aren’t registered for VAT.’
Now that the UK has left the EU, the rules will not be introduced here but it is likely that the Chancellor will look at the EU developments with interest, if only to create more tax parity.
‘Although the UK is no longer part of the EU where the underlying accommodation or transport is in the EU, these rules will apply. I also expect the UK to introduce its own version of this legislation in due course.”
HMRC has issued some guidance to taxpayers that deferred their VAT payments between 20 March and 30 June 2020 and still have payments to make.
HMRC is advising taxpayers who deferred their VAT payments to:
- pay the deferred VAT in full on or before 31 March 2021
- or opt in to the VAT deferral new payment scheme when it launches in 2021
- or to contact HMRC if they need more help to pay.
Taxpayers can pay their deferred VAT in full by 31 March 2021. There is no need to contact HMRC. However, if taxpayers want to use the new payment scheme they will need to opt in. The new online opt in process will be available in early 2021. Taxpayers will need to opt in themselves as this cannot be carried out by tax agents.
Where taxpayers opt in to the VAT deferral new payment scheme instead of paying the full amount by the end of March 2021, they can make up to 11 smaller monthly instalments which are interest free. All instalments of the outstanding amount must be paid by the end of March 2022.
In order for taxpayers to use the scheme they must:
- still have deferred VAT to pay
- be up to date with their VAT returns
- opt in before the end of March 2021
- pay the first instalment before the end of March 2021
- be able to pay the deferred VAT by Direct Debit.
Taxpayers must prepare to opt in by:
- creating their own Government Gateway account if they do not already have one
- submitting any outstanding VAT returns from the last four years. You will not be able to join the scheme if you have not done so
- correcting errors on their VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in their deferred VAT balance
- ensuring they know how much they owe, including the amount they originally deferred and how much they may have already paid.
Internet link: GOV.UK guidance
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