In response to growing way of working the Office of Tax Simplification (OTS) has recently published what it is calling
a ‘Focus Paper’ to highlight some of the tax issues and implications that arise from the gig economy. Because of the nature of the gig economy HMRC is facing significant compliance issues as it is not clear how tax on any income should be assessed and collected.
The stark warning to HMRC is that the share of lost tax as a result of the hidden economy could escalate due to the ad hoc nature of employment going forward. Given this, HMRC needs to take more seriously how they engage with the companies using independent workers as well as people earning money through the gig economy. The communications challenge is the need to inform the worker about their tax obligations and then help educate them in complying. The OTS warns that it is possible that the gig economy contributes to an increase in the hidden economy.
The main difficulty for HMRC arises from the fact that some individuals may be employed and paying tax under PAYE and others may be self employed.
The OTS says the situation is further complicated by various allowances. It highlights that in Budget 2016, the Chancellor announced the introduction of £1,000 ‘sharing allowances’, one for property income (for example through AirBnb and similar room rental propositions) and a second to cover trading income. Interest income may also be relevant for peer-to-peer lending sites (like Zopa): the first £1,000 of interest earned is tax free for basic rate taxpayers (£500 for higher rate).
The OTS poses a number of key questions relating to tax which need answering:
- the individual worker who contracts for a gig: are they employed or self-employed for tax purposes? How do they interact with the tax system? Is the system simple for them?
- the platform operator: could they become more involved beyond simply sorting out their own tax position?
- the individual or company who is offering the gig: does the hirer have any role?
- HMRC: the tax system has existing rules, systems to gather data and ways of assessing that will apply to those working in the Gig and Sharing Economies, just as to the generality of taxpayers. But what of the practicalities? What about knowing who the individuals are in the first place and then managing the increased monitoring load?
- the Exchequer: does gig working mean lower tax receipts, particularly of employer NICs?
Among the suggestions which the OTS says it wants to put up for debate is the requirement for platform operators to check that all its worker users have a relationship with HMRC. Alternatively there could be a requirement for those engaging workers through platforms to report activities, or even the introduction of some form of withholding tax.
If you operate a business which uses a independent workers to fulfil your offer or provide specific services get in touch today and we’ll help keep you business on the right side of the law.
If you’d like to read more blogs on the subject of HMRC and government proposals on tax collection, take a look here.
