A Reddit user recently asked a question that plenty of Airbnb hosts are wrestling with as Making Tax Digital approaches: “Does anyone know how to record Airbnb income on Xero? I’ve googled it and searched here but couldn’t find anything definitive.”
The reason they couldn’t find a definitive answer is that the question has three layers, and most guides only address one:
- What to record — gross booking value vs net payout, fees, cleaning costs, occupancy taxes
- Where it goes — property income vs trading income, which SA pages, which software categories
- How to do it in your software — the practical Xero (or QuickBooks, or FreeAgent) setup
Get any layer wrong and you’re either understating income, missing legitimate expense deductions, or filing on the wrong part of your tax return. Here’s the definitive answer, layer by layer.
Layer 1: What to Record — Gross, Not Net
This is the mistake most Airbnb hosts make. Airbnb deposits a net amount into your bank account — the booking value minus their service fee, minus any occupancy taxes they collect, plus any cleaning fee you charged the guest. It’s tempting to just record that net deposit as income and move on.
Don’t. You need to record the gross booking value as income and the fees as separate expenses. Here’s why:
- HMRC wants to see your actual income and actual expenses, not a net figure. Recording only the net payout understates both your income and your expenses, which makes your records inaccurate even if the tax outcome happens to be the same.
- If HMRC checks your records and sees your bank deposits don’t match your declared income, the net-only approach creates an immediate discrepancy. The gross-and-split approach reconciles cleanly.
- Some fees are deductible expenses. If you bundle them into a net income figure, you lose the ability to claim them.
The anatomy of an Airbnb payout
A single Airbnb booking typically generates these components:
| Component | What it is | How to record it |
|---|---|---|
| Gross booking value | What the guest paid before any deductions | Income (property income category) |
| Airbnb host service fee | Typically 3% of booking value (varies) | Expense (platform fees / agency costs) |
| Cleaning fee | Charged to guest, paid to you | Income (if you charge it separately) then expense (when you pay the cleaner) |
| Occupancy taxes | Tourist tax / local tax collected by Airbnb on behalf of the authority | Liability (not your income — you’re collecting it for the council) |
| Net payout | What lands in your bank | The result of the above, not the starting figure |
The cleaning fee deserves a note: if Airbnb collects the cleaning fee from the guest and includes it in your payout, it’s income to you. When you then pay a cleaner, that’s a separate expense. If you clean yourself, the cleaning fee is still income but you can’t deduct anything for your own labour — you just pay tax on it.
Occupancy taxes are the easiest to get wrong. If Airbnb collects these on behalf of a local authority, they’re not your income and not your expense — they pass through. Record them as a liability (money you owe to the authority) that clears when Airbnb remits them. Don’t record them as income.
A worked example
A guest books a 3-night stay for £300. Airbnb’s host service fee is 3% (£9). The cleaning fee is £40. Occupancy tax is £12.
| Entry | Amount | Category |
|---|---|---|
| Gross booking value | £300 | Property income |
| Cleaning fee | £40 | Property income |
| Airbnb host service fee | -£9 | Expense (platform fees) |
| Occupancy tax | £12 | Liability (not income) |
| Net payout to your bank | £343 | (£300 + £40 - £9 + £12) |
Your income is £340 (£300 + £40), your expenses include £9, and the £12 occupancy tax sits as a liability until Airbnb remits it. The £343 that lands in your bank reconciles to these entries.
Layer 2: Where It Goes — Property Income vs Trading Income
This is the layer that determines which pages of your Self Assessment you file, and it’s where the April 2025 FHL abolition has muddied the water.
The default: UK property income
According to HMRC’s Property Income Manual (PIM1051), rental income — including from short-term lets — is taxable as property income by default:
“Rental income from furnished, unfurnished, commercial and domestic premises, and from any bare land, is taxable as property income.”
“Rents or other receipts arising from a single transaction for the exploitation of rights over UK land are treated as if they arose in a property business. Therefore the property income charge extends to one-off or casual lettings that may not have the degree of organisation normally associated with a business.”
For the vast majority of Airbnb hosts, income goes on the SA105 (UK property) pages of your Self Assessment, not the SA103 (self-employment) pages. This is true whether you let a spare room, a whole flat, or a holiday cottage — as long as you’re not providing hotel-level services.
The exception: trading income
Income only crosses into trading territory if the level of service you provide takes it beyond mere property exploitation. The leading authority is Pawson v HMRC [2013] UKUT 050 (TCC), which asked whether a holiday cottage was held “wholly or mainly” for investment purposes or for trading.
The factors that push an Airbnb operation into trading income, based on Pawson and subsequent HMRC guidance, include:
- Provided meals or catering — breakfast, packed lunches, or full-board service
- Daily housekeeping during a guest’s stay (not just turnover cleaning between bookings)
- On-site staff for check-in, concierge, or guest support
- An integrated guest-experience offering — tours, activities, in-house entertainment
- A commercial-grade operation with multiple properties and direct bookings independent of platform listings
The factors that keep it as property income:
- You hand over the keys and the guest looks after themselves
- Cleaning happens between bookings, not during stays
- You communicate with guests by message for logistics, not as a concierge
- You list on Airbnb (or similar platforms) rather than running a direct-booking website at scale
If you’re a typical Airbnb host — listing a property, handing over keys, cleaning between stays — you’re almost certainly in the property income category. File on SA105.
What the FHL abolition changed (6 April 2025)
From 6 April 2025, the Furnished Holiday Lettings (FHL) regime was abolished. This is a significant change for Airbnb hosts who previously classified as FHLs.
Before April 2025, qualifying FHLs (furnished, let commercially for at least 105 days, available for at least 210 days) enjoyed several tax advantages:
- Full mortgage interest relief (not restricted under Section 24)
- Capital allowances on furniture and equipment
- Profits counted as relevant earnings for pension contributions
- Business Asset Disposal Relief on disposal (10% CGT rate)
After April 2025, all of that is gone. Former FHL hosts now report as standard UK property income on SA105, with the same rules as any other residential landlord:
- Mortgage interest is restricted under Section 24 — you get a 20% tax credit, not full deduction
- Furniture and equipment — no capital allowances; use the replacement of domestic items relief instead (deduct the cost of replacing, not buying new)
- Pension contributions — profits no longer count as relevant earnings
- CGT on disposal — no Business Asset Disposal Relief; standard CGT rates apply
For your accounting software, this means if you previously had an FHL category or tag, you should merge it into your standard property income category from the 2025-26 tax year onwards.
The Rent-a-Room scheme: £7,500 tax-free
If you’re letting furnished accommodation in your only or main home — a spare room, or your whole home while you’re away — the Rent-a-Room scheme gives you £7,500 per year tax-free (£3,750 if someone else shares the income).
Key points:
- It covers Airbnb income from your main home, not from a separate property
- The £7,500 is gross receipts (before expenses)
- If your gross receipts are under £7,500, you’re automatically exempt — no tax, no need to declare (unless you want to claim losses)
- If your gross receipts are over £7,500, you choose between two methods:
- Method A (actual profit): pay tax on gross receipts minus expenses
- Method B (excess): pay tax on gross receipts minus £7,500, with no expenses deducted
- HMRC defaults to Method A; you must tell them if you want Method B
For accounting software purposes: if you’re under the £7,500 limit, you may not need to record anything in Xero at all — the income is exempt. If you’re over, record it as property income and use the Rent-a-Room election on your tax return.
The £1,000 property income allowance
Separate from Rent-a-Room, there’s a £1,000 property income allowance — similar to the trading allowance. If your gross property income from all sources is under £1,000, you don’t need to declare it or pay tax on it.
You cannot use the £1,000 property allowance and Rent-a-Room on the same income — you choose one. For most Airbnb hosts letting in their own home, Rent-a-Room (£7,500) is far more generous. For hosts letting a separate property with small income, the £1,000 allowance may apply.
You also cannot use the £1,000 property allowance and claim actual expenses — it’s one or the other, the same either/or rule as the trading allowance. See our trading allowance vs expenses guide for how this either/or rule works (the principle is identical for the property allowance).
Layer 3: How to Set It Up in Xero (and Other Software)
The Reddit poster asked about Xero specifically, but the principles apply to any MTD-compatible software — QuickBooks, FreeAgent, QuickFile, etc. The terminology changes; the structure doesn’t.
Step 1: Connect your bank feed
Set up a bank feed from the account Airbnb pays into. Xero supports direct feeds from most UK banks. Each time Airbnb sends a payout, it appears as a transaction in Xero. If you don’t have a dedicated account yet, Tide offers a free business current account that connects to Xero and other MTD software.
Step 2: Create the right chart of accounts categories
You need these categories (Xero account types in brackets):
| Category | Xero account type | What goes here |
|---|---|---|
| Property income — Airbnb | Revenue | Gross booking values + cleaning fees |
| Platform fees | Expense | Airbnb host service fees |
| Cleaning costs | Expense | What you pay cleaners |
| Occupancy tax liability | Current liability | Tourist taxes collected by Airbnb |
| Property expenses — [subcategories] | Expense | Utilities, insurance, maintenance, etc. |
If you have both self-employment income and property income, use tracking categories in Xero to tag transactions by income source. This matters for MTD — you’ll send separate quarterly updates for each income source, and clean tagging makes the split automatic.
Step 3: Split each Airbnb payout
When an Airbnb payout appears in your bank feed, don’t just code it as “property income.” Use Xero’s find & reconcile or split function to break it into its components:
- Gross booking value → code to Property income — Airbnb
- Cleaning fee (if included in payout) → code to Property income — Airbnb
- Airbnb host service fee → code to Platform fees (as a negative line, or a separate expense transaction)
- Occupancy tax (if applicable) → code to Occupancy tax liability
The net of these lines should equal the payout amount, and the transaction reconciles.
Step 4: Handle cleaning costs
When you pay a cleaner (or a cleaning service), record that payment as Cleaning costs (expense). The cleaning fee you charged the guest is income; the cleaning cost you paid is an expense. They net out in your profit calculation, but both need to be recorded separately.
If you clean the property yourself, there’s no expense to claim — you can’t deduct for your own labour. The cleaning fee you charged the guest is still income.
Step 5: Record property expenses as they occur
Throughout the year, record your other property expenses as they happen:
- Utilities (gas, electricity, water) — if you pay them
- Insurance (building, contents, public liability)
- Maintenance and repairs
- Mortgage interest (record it, but remember Section 24 restricts the deduction — your software or accountant handles the tax credit calculation)
- Replacement of domestic items (furniture, appliances — use the replacement relief, not capital allowances, post-FHL abolition)
Step 6: MTD quarterly updates
If you’re mandated for MTD (property income over £50,000 from April 2026, over £30,000 from April 2027, over £20,000 from April 2028), your software pulls these digital records into your quarterly updates automatically. You don’t need to do anything extra — the categorisation you’ve done in steps 2-5 is what feeds the quarterly submission.
See our MTD quarterly updates guide for deadlines and penalties, and our MTD for landlords guide for property-specific rules including joint ownership and non-resident situations.
Common Mistakes to Avoid
1. Recording only the net payout as income
The most common mistake. If Airbnb pays you £343 for a £300 booking (plus cleaning and taxes), recording £343 as income understates your gross income and hides the fees. Split every payout.
2. Recording occupancy taxes as income
If Airbnb collects a tourist tax on behalf of a local authority, that money isn’t yours — you’re just the conduit. Recording it as income inflates your revenue and means you pay tax on money that isn’t yours. Record it as a liability.
3. Using capital allowances on furniture (post-FHL abolition)
Before April 2025, FHL hosts could claim capital allowances on furniture and equipment. After the FHL abolition, this is no longer available for property income. Use the replacement of domestic items relief instead — you deduct the cost of replacing an item (not buying a new one for the first time).
4. Claiming mortgage interest as a full deduction (post-FHL abolition)
Section 24 restricts mortgage interest relief to a 20% tax credit for all residential property income, including former FHLs. If you were previously deducting full mortgage interest as an expense, you can’t from 2025-26 onwards. Your software or accountant handles the tax credit calculation, but you need to record the interest separately so it can be identified.
5. Missing the Rent-a-Room election
If you let in your own home and your gross receipts are over £7,500, HMRC defaults to Method A (tax on actual profit). Method B (tax on gross minus £7,500, no expenses) might give you a lower bill — especially if your expenses are low. You have to tell HMRC you want Method B; they won’t apply it automatically. Run both calculations.
6. Not separating property income from self-employment income
If you have both (e.g., you Airbnb a flat and also do freelance work), keep them in separate categories with tracking tags. Under MTD, you send separate quarterly updates for each income source. Mixing them in one category means manual disentangling every quarter.
The Bottom Line
- Record gross booking value as income, not the net payout. Split each Airbnb payout into gross income, platform fees, cleaning fees, and occupancy taxes in your accounting software.
- Most Airbnb income is UK property income (SA105), not trading income. It only becomes trading if you’re running a hotel-level operation with meals, daily housekeeping, and concierge services.
- The FHL regime was abolished on 6 April 2025. Former FHL hosts now report as standard property income — no capital allowances on furniture, mortgage interest restricted under Section 24, no Business Asset Disposal Relief.
- Rent-a-Room gives you £7,500 tax-free if you let in your own home. The £1,000 property allowance is a separate option for separate-property lets with small income.
- In Xero (or any MTD-compatible software): connect your bank feed, create property income and expense categories, split each payout, and use tracking categories to separate property from self-employment income. The software handles MTD quarterly updates from there.
- Occupancy taxes are a liability, not income. Don’t pay tax on money you’re collecting for a local authority.
For the full overview of how UK property tax works for landlords — the three income regimes, Section 24, allowable expenses, the Non-Resident Landlord Scheme, and capital gains — see our property tax UK landlord hub. For the full MTD rules for property income, see our MTD for landlords and non-residents guide. For quarterly update deadlines and penalties, see our MTD quarterly updates guide. For whether MTD software costs are themselves deductible, see our MTD software allowable expense guide. For more practical record-keeping systems, browse the full shoebox method hub.