Short-term lets and HMOs: accounting, VAT questions, and expense allocation

If you run short-term lets (think serviced or holiday-style stays) and HMOs (shared houses with multiple tenants), you’ll quickly notice they feel like the same “property business”… until you get into the numbers. The income pattern is different, the paperwork is different, and VAT can go from “not relevant” to “oh, this matters” surprisingly fast.

This guide walks you through how to keep your bookkeeping clean, how to think about VAT, and how to allocate expenses so you don’t end up guessing at year end.

Short-term lets vs HMOs: what changes in the accounts?

Short-term lets usually mean:

• Lots of small bookings (often via platforms)
• Higher turnover movement month-to-month
• More “ops” costs: cleaning, laundry, consumables, guest damage, booking fees
• More frequent repairs and replacements

HMOs usually mean:

• Fewer tenant payments (monthly rent)
• More predictable income
• More compliance/maintenance overhead (and sometimes licensing costs)
• Utilities often paid by you (depending on how you run it)

From a legal definition angle, a property is typically an HMO if at least 3 tenants live there as more than 1 household, sharing facilities (kitchen/bathroom/toilet). A “large HMO” is 5+ tenants from more than 1 household sharing facility. 

The accounting takeaway: treat them as 2 distinct “systems” inside your books, even if they sit under the same ownership.

Bookkeeping setup that stops the year-end panic

If you want your numbers to be useful (not just “fileable”), set up your bookkeeping so you can answer these quickly:

• Which property type is actually producing profit?
• Are cleaning and platform fees eating your margins?
• Are HMO utilities rising faster than rent increases?
• Are repairs genuine maintenance… or capital improvements?

A simple approach that works well:

1. Track each property separately (tracking categories/projects are ideal).
2. Split income lines: Short-term income vs HMO rent.
3. Split expense lines so they match reality:
   • Cleaning & laundry
   • Platform/agent fees
   • Utilities (gas/electric/water/broadband)
   • Consumables (coffee, toiletries, linens)
   • Repairs & maintenance
   • Compliance (certs, alarms, inspections)
   • Insurance
   • Mortgage interest/finance costs (where relevant)

If you’re using Xero, getting the structure right early makes everything else easier (and reduces “misc” expenses that create messy questions later). You can also outsource the weekly/monthly routine so nothing piles up — that’s exactly what Xero bookkeeping is for.

And if you’re building reporting for multiple properties (or managing for others), building management reports is the next step once your bookkeeping is consistent.

VAT: the questions landlords actually need to ask

VAT is where short-term lets and HMOs really split.

1) Is your income even VATable?

• Most residential rent is VAT exempt (typical long-term letting).
• Holiday-style/short-term accommodation is generally VATable at the standard rate (similar to hotels/holiday accommodation rules). 

That means an HMO may sit comfortably outside VAT most of the time, while a short-term let can push you towards VAT registration far sooner.

2) Do you need to register for VAT?

The UK VAT registration threshold is £90,000 taxable turnover over a rolling 12-month period (with a deregistration threshold of £88,000).

Key point: it’s taxable turnover, not total income. If you have a mix (VATable short-term stays + VAT-exempt residential rent), only the VATable element counts towards the VAT threshold.

3) What happens if you run both short-term lets and HMOs?

This is where people get caught out:

• Your short-term let turnover can tip you over £90,000 even if the HMO side is stable.
• Once VAT-registered, you’re dealing with VAT compliance, MTD submissions, and the practical question of whether your pricing can absorb VAT or needs to be reworked.

If you’re VAT registered, the admin matters just as much as the tax. Our VAT return services are designed to keep filings accurate and reduce the “last-minute scramble” feeling.

4) Can you reclaim VAT on costs?

Often yes — but it depends on what your costs relate to.

If you have only VATable short-term lets, input VAT on eligible costs is usually more straightforward.

If you have a mix of VATable and exempt income (short-term lets + HMOs), you can run into partial exemption rules, because you’re using costs to support both VATable and exempt supplies. This is exactly why getting VAT right in your bookkeeping software matters. If you use Xero, VAT in Xero explains how adjustments and partial exemption are handled in practice.

The “FHL is gone” point you shouldn’t ignore

A lot of landlords still talk about “FHLs” (furnished holiday lets) as if the old tax advantages are still there. The FHL tax regime was abolished from April 2025. 

So in 2026, your short-term let accounting focus is less about chasing historic FHL-style benefits, and more about:

• clean property income reporting
• evidence-backed expense claims
• sensible treatment of capital vs repairs
• VAT risk management (where short-term turnover is high)

Expense allocation: how to do it without making it up

Expense allocation is one of the biggest “quiet risks” in property bookkeeping — especially if:

• you have mixed-use costs (utilities, broadband, cleaning staff used across multiple properties)
• you block out dates for personal use
• you live in the same building, or rent a room in your own home
• you have 1 mortgage covering more than 1 property/activity

HMRC’s principle is basically: use a reasonable method and be consistent, and where there is private use you need to split expenses between rental and private use. 

Practical allocation methods that hold up well:

• By nights booked (short-term lets): total nights let / total nights available (adjust for genuine private use)
• By floor area (if splitting utilities between a self-contained owner area and a let area)
• By room count (common for HMOs where you pay utilities and want to allocate cost per room)
• Direct attribution first (best practice): if the cost clearly belongs to Property A, don’t allocate it — code it directly.

If you’ve got borrowing that funds for more than one purpose, HMRC also expects a reasonable apportionment when working out finance costs. 

When your property setup is growing, it’s worth having a property specialist sanity-check the structure — that’s what Property tax accountants support with.

Where FHP Accounting fits in

If you want the short-term lets and HMO side of your portfolio to be genuinely clear (not just “submitted”), the goal is simple: tidy data in, useful numbers out.

Depending on what you need, you might start with:

• Landlord accountants if you’re building or scaling a portfolio
• Property accountants if you need day-to-day clarity across properties
• Residential property management accounting if you’re handling blocks/management accounting alongside lettings
• Service charge accounting if service charges overlap with how you run or recover costs
• A broader service overview via Fundamentals if you’re not sure where to start

FAQs

Do I have to charge VAT on my short-term let?

Not automatically — you only charge VAT if you’re VAT registered (or required to register). Short-term/holiday-style accommodation is generally VATable, so it can push you towards registration once your taxable turnover crosses £90,000 in a rolling 12-month period. 

Is HMO rental income VATable?

Most residential rent is VAT exempt, which is why HMOs often sit outside VAT. The key is whether you’re supplying something that’s treated more like serviced accommodation (short stays + services) versus standard residential letting.

I run both HMOs and short-term lets — what turnover counts for VAT registration?

Only taxable turnover counts towards the VAT threshold — so typically your short-term let income counts, but exempt residential rent doesn’t. The mix can trigger partial exemption issues when reclaiming VAT on shared costs. 

How do I allocate shared expenses fairly across properties?

Start by coding costs directly wherever possible. For shared costs, use a consistent, reasonable method (for example: nights booked for short-term lets, room count for HMOs, floor area if splitting a building). HMRC expects apportionment where there’s private use or mixed use. 

Does the old furnished holiday let (FHL) regime still apply?

No — the FHL tax regime was abolished from April 2025, so in 2026 the focus is on normal property income reporting and getting your bookkeeping/VAT position right.

What’s the biggest bookkeeping mistake with short-term lets?

Not reconciling platform payouts properly. You want to record: gross booking income, platform fees/commissions, and net payouts separately, so your revenue and costs aren’t understated and your VAT position (if registered) stays accurate.

Next steps

If you’re juggling short-term lets and HMOs and you want numbers you can actually trust — not just figures you hope are right at year end — FHP Accounting can help you set up clean tracking, answer the VAT questions properly, and keep expense allocation sensible and defensible.

Take a look at Fundamentals to see how we support landlords and property businesses, then get in touch to talk through your setup and where the quick wins are.

Kellee Quigley

I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.