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by Viya Nsumbu 26th July, 2018

Taxing the gig economy

The Office for Tax Simplification (OTS) published a discussion paper recommending that the Government compel gig economy platforms, such as Uber and Deliveroo, to deduct tax from the earnings of self-employed workers.

If accepted by the Government, the move would see the creation of a system similar to PAYE and would ease the compliance burden faced by the estimated 1.3 million gig economy workers, as well as providing HMRC with additional income.

Currently, those working in the gig economy are considered ‘self-employed’ for tax purposes, meaning they have responsibility over their tax obligations. The proposals would remove the requirement for gig economy workers to complete self-assessment, reducing the overall number of people submitting tax returns.

For HMRC, which has seen significant cuts to its budget, this would reduce the administrative burden. This is very important given that the number of people registering as self-employed has increased from 3.3 million people (12.0% of the labour force) in 2001 to 4.8 million (15.1% of the labour force) in 2017.

While the paper avoids the high-profile legal challenges – stating explicitly that it is does not consider these topical cases – the ensuing debate will undoubtedly ponder the recent rulings against companies like Hermes and Pimlico Plumbers.

Perhaps what is more interesting is just how familiar the proposals sound. In wanting gig economy platforms to take on greater responsibility for the tax obligations of their workers, the OTS is creating a system which is very similar to the IR35 reforms.

Equally, the OTS’ discussion document describes the PAYE-equivalent system as ‘voluntary’, however as we have seen from previous tax reforms, these usually end up as anything but. It is likely that the recommendations will feed into the Government’s current consultation on plans to extend IR35 to the private sector.

So what next?

Early indications suggest that the proposals could further complicate the status of self-employed individuals, calling into question the difference between an employee and a contractor. Equally, how will HMRC differentiate between a self-employed gig economy worker and other self-employed individuals?

Nevertheless, expect to see more from this over the coming months, especially in the discussion about off-payroll working in the private sector.

GK’s research team have pulled together a handy briefing paper on the Government’s consultation on plans to extend the IR35 reforms to the private sector.

If you would like further information on IR35 or if you would like to get in touch about your strategic communications, please contact viya@gkstrategy.com

See more articles by Viya Nsumbu