In a bid to achieve tax parity in the travel and hospitality sector, the European Union is set to impose VAT on rental incomes earned by British landlords through online platforms, letting holiday homes across the EU. The implementation is scheduled under the ‘VAT in the Digital Age’ scheme and will take effect from 2025.

This move will require landlords to pay an average VAT rate of 20% irrespective of their residential status, whether within or outside the EU. This news comes via Tax Assist Accountants, who suggest that these charges will be borne by platform operators like Booking.com and Airbnb. Therefore, landlords must consider this additional cost when setting their rental charges to safeguard their profit margins.

Interestingly, the EU estimates that a majority of accommodation providers – approximately 70% – operating on on-demand platforms such as Airbnb and Booking.com are not registered for VAT. The impending regulation will pose significant administrative challenges for platform operators, who will be required to discern and inform each member state about VAT-registered providers and those without VAT numbers.

This legislation also encompasses companies that serve as local agents for landlords owning holiday cottages, apartments, and villas throughout Europe.

The overarching goal of this initiative is to ensure a level playing field for tax rules within the EU’s travel and hospitality sector. Currently, the complexity surrounding VAT registration means that hotels and conventional taxi services pay VAT on all disclosed sales, unlike their independent counterparts.

Tax Assist Accountants have raised the possibility that UK Chancellor Jeremy Hunt may observe the success of this scheme with keen interest. It’s suggested that if the program proves effective in levelling the tax landscape, he may consider introducing a similar initiative to bolster tax equality.