Airbnb Host Fee Changes

Airbnb has quietly been rolling out a major change to the way its commission structure works to bring it more in line with other commercial booking agents. For many UK hosts, the impact on VAT, pricing, and profitability will be significant.

What’s Changing?

Until now, Airbnb operated a split fee model where they charged the host 2.5% plus VAT and the customer a further c15%.

As of June 26, Airbnb is expected to shift to a host only fee model and a flat fee of c15%. This means that whilst the customer will pay the same (as long as prices are updated on the platform), from June the increased fee will be payable by the host rather than the customer.  

Some hosts have already moved to the new structure voluntarily and it becomes compulsory by mid June.

Consequences?

This isn’t just a pricing change - it has real consequences. Assuming that prices are adjusted online to ensure that the host receives the same figure net of fees as at present:

• The amount of ‘gross up’ for fees will be higher - i.e. 15% deduction rather than 2.5%
• The gross turnover declarable by the business will be higher 

Why this matters for VAT:

It’s worth noting that Airbnb is not UK based and as such (for businesses) does not charge UK VAT on fees. Instead, VAT on their fees is accounted for by the host business via a ‘reverse charge’ mechanism.

VAT in the UK is calculated on gross sales (i.e. before deductions for fees and costs).

If you are VAT registered:

• The amount of output VAT payable to HMRC will be higher as your gross sales will be higher (whether on the normal or flat rate scheme)
• In real terms, the amount in hand (after VAT) retained by host will reduce by c2-3% (depending on whether on the flat rate or normal scheme)
• As Airbnb is not UK based you cannot reclaim (further) input VAT on the 15% deduction to offset the increased output VAT due
• For hosts wishing to retain the same after VAT rate, prices to consumers will need to rise by around 3%

If you are not VAT registered:

• Your turnover ‘grossed up’ for fees deducted by Airbnb is higher
• You may meet the VAT threshold much sooner

In a harsh sting in the tail, when services are received from a non-UK business (such as Airbnb), these services are added to your gross turnover for the purposes of monitoring the VAT registration threshold (under the reverse charge rules).

Worked example

As a worked example if you currently earn say £85,000 net in hand from Airbnb. 

After grossing up for commission at 2.5%, this equates to a gross turnover of £87,180.

Adding on the Airbnb fees (reverse charge) gives a gross turnover for VAT registration purposes of £89,360. This is just under the £90,000 VAT registration threshold and as such there is currently no need to register for VAT.  All £85,000 is kept.

Because of the new rules (including higher fee gross ups and the reverse charge), staying below the £90,000 VAT threshold becomes much harder.

To keep turnover at £90,000:

• Your take home income would need to drop to around £66,500 - a significant 22% reduction

Alternatively:

• You could register for VAT, but to maintain the same level of income, you would need to increase sales from £87,000 to £124,000 - a 43% increase

Whilst there are some savings if the flat rate scheme for VAT is used the impact is considerable for those businesses who currently predominantly use Airbnb for the letting of holiday let properties.

Don’t forget - VAT registration wise, Airbnb may only be a part of your business activity and all (taxable) income is considered for VAT registration purposes.

Take advice

Whilst there may not be much ‘choice’ in accepting the changes, it is important to understand the implications and remain compliant.  

If you use Airbnb and have a net income after fees above £66,000 (or have other business activities alongside Airbnb income) you may well suddenly be in the remit of VAT. If you fail to register when required to do so, penalties and VAT levied at a later point can be significant.