Bed and Breakfast Owners — Tax and Business Guide

Running a bed and breakfast is one of those businesses that sounds idyllic — welcoming guests into your home, cooking a proper fry-up, and making a living from your spare rooms. The reality, of course, involves a lot more laundry, early mornings, and admin than the brochures suggest. And then there is the tax.

Whether you are letting a single spare room or operating a dedicated guest house, this guide covers everything UK B&B owners need to know about tax, expenses, business rates, and keeping HMRC happy.

Rent a Room Scheme — The Tax-Free Option

Before we get into the full business side, it is worth knowing about the Rent a Room Scheme. If you let furnished accommodation in your main home, you can earn up to £7,500 per year tax-free under this scheme. That is £7,500 of gross income — you do not deduct expenses first.

This is particularly useful for B&B owners who are just starting out or only let rooms occasionally. If your total B&B income is under £7,500, you can simply use the Rent a Room Scheme and avoid the need to file a Self Assessment return for that income (assuming you have no other reason to file).

However, there are important conditions:

• The property must be your main residence (not a second home or investment property).
• The accommodation must be furnished.
• If you share the income with a partner, each person gets a £3,750 allowance.
• You cannot claim expenses if you use the Rent a Room Scheme — it is one or the other.

If your income exceeds £7,500, or your expenses are high enough that claiming them would leave you better off, you should opt out of the scheme and report your income through Self Assessment instead.

Registering as Self-Employed

Once your B&B income exceeds the Rent a Room threshold (or you choose not to use it), you need to register as self-employed with HMRC. Most B&B owners operate as sole traders, though some larger establishments may trade as partnerships or limited companies.

You will receive a Unique Taxpayer Reference (UTR) and will need to file a Self Assessment tax return each year. Your taxable profit is your B&B income minus allowable expenses. This profit is added to your other income and taxed at the usual rates — the personal allowance is £12,570, with income above that taxed at 20% (basic rate), 40% (higher rate), or 45% (additional rate).

Allowable Expenses for B&B Owners

Here is where running a B&B gets interesting from a tax perspective. Because you are using your home (or part of it) as a business, there is a wide range of expenses you can claim. These include:

Direct costs:

• Food and provisions for guests (breakfast ingredients, tea, coffee, toiletries)
• Laundry costs (detergent, fabric softener, or a laundry service)
• Cleaning supplies and materials
• Guest amenities (welcome packs, tourist guides, Wi-Fi costs)
• Replacement linen, towels, crockery, and cutlery

Property and running costs (business proportion):

• Council tax (the proportion relating to guest rooms)
• Electricity, gas, water, and heating
• Insurance (buildings and contents, public liability)
• Mortgage interest (the business proportion — see below)
• Repairs and maintenance to guest areas
• Depreciation on furniture and fittings (capital allowances)

Marketing and admin:

• Website hosting and design
• Online listing fees (Booking.com, Airbnb, etc.)
• Photography for listings
• Stationery and printing
• Accounting software or bookkeeping fees
• Telephone and broadband (business proportion)

Other:

• Travel costs related to the business (buying supplies, attending tourism events)
• Training courses (food hygiene, first aid, hospitality qualifications)
• Professional memberships (local tourism associations, AA/Visit England ratings)

For a comprehensive rundown, see our complete list of sole trader expenses.

Splitting Home Expenses Between Personal and Business Use

This is one of the trickiest areas for B&B owners. If your B&B is in your own home, you need to work out what proportion of household costs relates to the business.

The most common method is to base it on the number of rooms used for the business versus total rooms, adjusted for the time those rooms are in use. For example, if you have eight rooms in your house and two are guest rooms let for 40 weeks a year, the business proportion might be:

2/8 (rooms) × 40/52 (weeks) = approximately 19%

You would then claim 19% of your household running costs (heating, electricity, water, insurance, etc.) as a business expense. HMRC does not prescribe a single method, but whatever approach you take must be reasonable and consistent.

Alternatively, you can use HMRC's simplified expenses for working from home, though for B&B owners with significant utility costs, calculating the actual proportion usually works out better.

Mortgage Interest — The Section 24 Question

If your B&B is in your own home and you have a mortgage, the rules around claiming mortgage interest depend on your business structure.

For sole traders and partnerships, the Section 24 rules that restrict mortgage interest relief for residential landlords do not apply to B&Bs in the same way. If you are running a genuine trading business (not just letting property), you can claim the business proportion of your mortgage interest as an expense. The key test is whether you are providing services (breakfast, cleaning, changing linen) beyond simply letting a room.

However, if you are operating more like a holiday let — providing a key and little else — HMRC may argue it is a property business rather than a trade, and the Section 24 restrictions would apply. The more services you provide, the stronger your case for trading status.

Business Rates vs Council Tax

B&B owners sometimes need to switch from council tax to business rates. The rules are:

• If you provide short-stay accommodation for more than six people at any one time, your property (or the B&B portion) may need to be assessed for business rates.
• If your B&B is in England and has a rateable value under £12,000, you may qualify for small business rates relief, potentially paying no business rates at all.
• In Wales and Scotland, similar reliefs exist but the thresholds differ.

Whether business rates or council tax works out cheaper depends on your circumstances. Some B&B owners find business rates more favourable due to the small business relief, but it is worth checking with your local council.

VAT for B&B Owners

The VAT registration threshold is £90,000. If your B&B turnover exceeds this in any rolling 12-month period, you must register for VAT. Accommodation charges are subject to VAT at 20%.

Even below the threshold, some B&B owners voluntarily register for VAT to reclaim VAT on renovation costs, new furniture, and other business purchases. This only makes sense if your guests are primarily business travellers or international visitors who expect a VAT receipt — leisure guests are unlikely to care, and adding 20% to your room rates could make you less competitive. Our VAT registration threshold guide covers the considerations in more detail.

Booking Platforms and Record Keeping

Most B&B owners use a mix of direct bookings and online platforms (Booking.com, Airbnb, Expedia). Each has different commission structures, and it is important to record:

• Gross booking income (before platform commission)
• Platform fees and commissions (these are deductible expenses)
• Any service charges or cleaning fees charged to guests
• Cash payments from walk-in guests or direct bookings

Keeping on top of this can be a headache, especially in peak season when you are too busy making beds to update spreadsheets. This is exactly the sort of thing Accounted is built for — you can connect your bank account, and Penny will help categorise your income and expenses automatically, so your records stay up to date without you spending hours on admin.

Food Hygiene and Licensing

While not strictly a tax matter, B&B owners need to be aware that serving food to paying guests requires you to register with your local authority's environmental health department. This is free and straightforward, but failing to do so can result in fines.

If you serve alcohol, you will need a premises licence or a personal licence. The costs of obtaining and maintaining these licences are deductible business expenses.

Planning Permission and Insurance

Running a B&B from your home may require planning permission, depending on the scale of the operation and your local authority's rules. Small-scale B&Bs in the owner's home often fall within permitted development rights, but larger operations or significant alterations to the property may need formal permission.

You will also need to check your home insurance policy. Standard home insurance typically does not cover commercial activities. You will need either a specialist B&B insurance policy or a rider on your existing policy. Public liability insurance is strongly recommended — the cost is a deductible business expense.

Keeping It All Together

Running a B&B means juggling hospitality with admin, and the tax side can feel overwhelming. The key is to set up good systems early:

• Keep a booking diary with dates, guest names, and amounts.
• Record all expenses as they happen (photograph receipts on your phone).
• Separate business and personal bank transactions where possible.
• Set aside money for your tax bill — a common rule of thumb is 25-30% of profit.

For a detailed breakdown of what you might owe, see our guide on how much tax you will pay as a sole trader.

Accounted helps UK sole traders stay on top of their bookkeeping and tax. Start your free 30-day trial at getaccounted.co.uk.

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Related reading:

• Sole Trader Expenses — The Complete List
• VAT Registration Threshold Guide
• How to Register as Self-Employed with HMRC

Related Reading

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• Tax Guide for Dance Teachers and Choreographers
• Private Investigators — Self-Employed Tax Guide

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