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Self-employed platform workers – Pay As You Trade?

Self-employed platform workers – Pay As You Trade?

New Office of Tax Simplification (OTS)paper outlines simplifications for self-employed digital platform workers – including tax withholding by platform operator.

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The Office of Tax Simplification (OTS) has published a new discussion paper. It considers how tax compliance could be simplified for self-employed individuals who find work through online platforms. 

This follows two other OTS papers on taxation and the ‘gig’ economy published in July 2017 (see our comments here) and December 2016.

What are the issues?

The OTS cites two key issues for self-employed platform workers which were identified by HMRC research:

  • Poor experience of the tax system – around a quarter of digital platform workers report feeling uncomfortable managing their tax affairs; and
  • Compliance risk – the self-employed are estimated to account for £5 billion of the £7 billion ‘tax gap’ in self-assessed income tax.

As the expected growth in self-employment has the potential to exacerbate these issues, the OTS suggests that a clear approach to how those in the ‘gig’ economy interact with the tax system is critical. We agree.

What does the OTS suggest?

As the purpose of its paper is to prompt debate, the OTS does not make any specific recommendations.
Instead it outlines the following potential approaches for future discussion:

  • Helping ‘gig’ workers to meet their obligations through improved HMRC guidance and a streamlined process for registering as self-employed;
  • Improved technology solutions to reduce the compliance burden; and
  • Introducing an optional withholding system equivalent to PAYE.

The OTS suggests a model for how an optional withholding system might work. In summary, for workers who choose to participate, this might involve the platform operator:

  • Registering as a withholding agent with HMRC and being issued a withholding code (similar to a PAYE code);
  • Computing the worker’s taxable profits in real time;
  • Withholding and remitting estimated tax payments to HMRC on a weekly or monthly basis; and
  • ‘Truing up’ withholding at the end of the tax year to correct any under or over deductions and minimise the need for the individual to submit a tax return.

KPMG’s view

A voluntary withholding regime for self-employed platform workers does have the potential to simplify personal tax compliance. If successful, it could also potentially be extended to other self-employed individuals. 

That said, we think there would be a number of issues to think carefully about in deciding whether or not this could be a practical approach.

Withholding based on actual or estimated weekly or monthly profits could require complex legislation and be operationally challenging – for both the platform operator and HMRC. 

Platform operators might be concerned at the prospect of being required to operate withholding at a worker’s discretion, and incurring the associated costs without any direct business benefit. 

The OTS recognises these challenges, and suggests that a practical, rather than legislative, solution – such as improved HMRC guidance and innovative use of technology – may therefore be the better approach in the short term.

We agree, particularly as the Government may in any event decide to make changes to the position of workers in the ‘gig’ economy further to the Employment Status Consultation and the Taylor Review (see our comments on Taylor, the Government’s response and the Consultation,). 

We welcome this OTS contribution to the debate on tax compliance among the self-employed platform workers in the gig economy and we await the Government’s response with interest.

If you have any queries, or would like to talk through any aspects of the taxation of ‘gig’ workers, please get in touch with your normal contact or e-mail employersclub@kpmg.co.uk.

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