Food for thought in advance of the publication of Matthew Taylor’s Review of Modern Employment Practices.
The Office of Tax Simplification (OTS) has published an updated focus paper on the ‘Gig’ economy. The paper does not make any recommendations, but nevertheless may be a precursor of some of the themes which would be considered in a future call for evidence or consultation from HMRC/HMT, following the publication of the Taylor Review of Modern Employment Practices.
The tax issues are not new. The gig economy is not new. What is new however, is the scale and speed at which technology is allowing the gig economy to evolve and deliver. And this is allowing the gig economy to ‘challenge’ traditional employment-centric business models.
As the gig economy continues to grow, those tax issues will be exacerbated. The OTS report looks at them from the perspective of the main stakeholders.
Tax issues for ‘giggers’
Many giggers have in previous roles had income tax deducted at source via PAYE and so have had minimal direct interaction with the UK’s tax system. Where the sums involved for their gigging roles are low, it is considered unlikely that they are engaging accountants and so are left to navigate the complexities of the UK tax system alone.
Non-compliance or under-reporting are potential outcomes. So how can this be resolved? The OTS offers three options:
Tax issues for platforms
The primary risk for the platforms lies in HMRC successfully challenging the status of the giggers as self-employed, and instead deeming them to be employees of the platforms.
Employment status risk is of course well-established as a concept, and the OTS paper doesn’t dwell on this. Instead, it turns its attention to ways in which platforms could help self-employed giggers remain tax compliant, perhaps by integrating cloud based accounting software into the platform to help giggers track their income.
Although not explicitly mentioned, the natural evolution of this may be for HMRC to mandate that platforms should report the information directly into the gigger’s personal tax account on a quarterly basis as part of the move to MTD.
Tax issues for HMRC and the Exchequer
The OTS is clear that for HMRC, the gig economy poses a significant threat. While HMRC has the necessary powers to collect tax, they may no longer be the most efficient tools: as an example, a single employer collecting taxes for 100 employees and acting as a professional, single point of contact for HMRC is replaced by 100 giggers with varying tax knowledge and administrative skills.
The OTS’s suggestion is that HMRC keeps under review its existing powers. The most obvious question is, to what extent can the platform fill the role currently assigned to employers and perhaps undertake some form of withholding? There is already a precedent of sorts for this in the Construction Industry Scheme where net payment status subcontractors are concerned.
While the risks for HMRC are around collection, the risks for the Exchequer are around structural issues in the UK tax code that may lead to a fall in receipts: a single organisation which would have charged VAT is replaced by many small giggers all below the VAT threshold. Employer’s NIC which would have been collected on salary payments is not payable on payments to self-employed workers. Corporation tax on profits of a UK based entity is lost where platforms are non-resident.
These are difficult issues. And the amounts at stake are significant. Employer’s NIC alone raises c£65 billion per annum.
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