Taxation of the Sharing Economy

Q: I am thinking of letting two spare rooms in my house via airBnB. I live close to the city centre so I may also rent out my driveway for someone to park on. What are the tax rules for this kind of income?
 
A: More and more people, like you, are taking advantage of ‘sharing’ websites to rent rooms, cars, boats etc to other individuals. This “sharing economy” can generate significant income for those providing such assets.
 
From 6 April 2017, two new tax-free allowances will be introduced for income generated from the sharing economy – £1,000 per tax year for trading income and another £1,000 per tax year for property income. The property income can be from letting an entire property or just part of it such as a room, loft or garage.
 
If income from trading or letting property is less than £1,000, there will be no requirement to report this income to HM Revenue & Customs as it will not be subject to income tax. HMRC expects this to be the case for at least half a million individuals.
 
Where income exceeds £1,000, the excess is taxable and must be reported to HMRC. For example, a taxpayer receives income of £1,500 from hiring his car to individuals and another £3,500 from letting his driveway to a commuter. He is entitled to a tax-free allowance of £1,000 on each source of income which gives him taxable income of £500 and £2,500 in 2017/18.
 
Where an individual lets a furnished room or rooms in their main residence, rent-a-room relief of £4,250 per tax year is available (this limit increased to £7,500 from 6 April 2016). If rent is within the threshold, there is no need to report it to HMRC as it is not taxable. Where rent is more than this amount, you can calculate your taxable profit either by deducting the exemption or your actual expenses from your income.
 
With the rapid growth of the sharing economy, many individuals
in the UK will be required to enter the self assessment regime,
some for the first time, to report their income from this source
to HMRC.
 
Those who received income during 2015/16 should have already notified HMRC of their liability to tax. A self assessment tax return will need to be submitted and any tax liability paid by 31 January 2017 to avoid penalties and late payment interest.
 
It should be noted that as the tax-free allowances only come into force in April 2017, the full amount of income received in 2015/16 is taxable if rent-a-room relief does not apply.