Online platforms and gig economy workers pose new challenges for taxation system
Phrases such as “I’ll get an Uber” and “shall we get a Deliveroo?” can be heard with increasing regularity nowadays. It is quite amazing that businesses in such relative infancy are now referred to by name as the generic description for what they do.
You may have noticed such companies have been in the news of late in relation to the employment status of those who deliver services for them. The Office of Tax Simplification recently published a paper exploring ideas for taxing these so-called gig economy workers. The review follows on from government consultations around employment status and a call for evidence on the role platforms could play in ensuring tax compliance by their users.
According to the OTS, 800,000 more people have registered as self-employed since 2009, with self-employment now accounting for about five million workers in the UK, up to 1.3 million of whom spend at least part of their time working in the gig economy. HM Revenue & Customs estimates self-employed people account for £5bn of the £7bn uncollected tax gap for those who self-assess for income tax.
The OTS paper explores the possibility of recreating an arrangement for those finding work through online platforms on a self-employed basis that looks more like that of an employee from an administrative point of view – with relatively simple tax affairs dealt with via something akin to PAYE.
The OTS suggests that:
- The government considers the case for enabling platforms to operate a system equivalent to PAYE for self-employed workers (without affecting employment status). The initial idea for this is that platforms could compute taxable profits, deduct tax and pay that tax on account to HMRC, then “correct” it for the worker at the end of the year.
- HMRC continues to focus on the development of guidance and to ensure this is readily available.
- HMRC considers how best to facilitate technology developers and others to provide reassurance to the self-employed that digital apps are fit for purpose in submitting accurate data and returns as necessary.
- HMRC considers to what extent it can play a role, in partnership with the software industry, in facilitating the creation of an app to help self-employed people manage tax affairs.
Interestingly, the OTS research found platform workers were more likely to operate in professional occupations than they were to be a taxi or goods delivery driver, for example. It acknowledges the importance of continuing to ensure the tax system supports those engaged in every kind of work.
It also recognises that not all platforms make use of (or “employ”) the services of individuals, especially where that person earns an income through the platform by hiring out an asset – for instance, letting out a spare room on Airbnb.
While the OTS does not appear to have come to a detailed conclusion as yet, it does highlight some interesting statistics that may give a clue to the eventual direction of government policy in this area.
With total self-employed National Insurance revenue expected to be £3bn in 2016/17, it says: “Before allowing for the reduced benefit entitlements that remain, this means the self-employed are paying only 37 per cent of the NICs that would be paid if they were employed. Differential benefit entitlements that remain may justify some difference in tax rates, but not on anything like this scale.”
Aside from this bigger picture issue, let’s not forget this increasing number of gig economy workers, whatever their eventual employment status turns out to be, will need important financial protection in the case of serious illness or death. And that is before thinking about pension provision.
The corollary to the flexibility and control that self-employment brings is the absolute responsibility for your own financial wellbeing. At the low level of pay from some gig platforms, that is going to represent a challenge.
Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn