The ‘gig economy’ has been very much in the news in recent months. While much of the political attention has been focused on the employment effects of this phenomenon, the implications for UK tax are wide-ranging and hugely significant.
The name refers to the general trend of workers using an online platform to source small on-demand pieces of work (gigs) for which they are paid on a self-employed basis, rather than working for a typical employer. A related development is the sharing economy (generating income by the sharing of assets such as through Airbnb).
The landscape of employment has changed in recent years: it is now more common for people to have multiple income streams and there has been a rise in flexible working (such as freelancers and those on zero-hours contracts).
Further, since the Uber employment case of 2016 (likely to be appealed), workers are no longer simply classed as employees or self-employed for employment rights purposes. While this distinction has traditionally been the basis upon which Income Tax from employment is assessed, the Uber case and the employment trends noted above have muddied the waters. Uber has recently had its operating licence in London revoked. It is very likely to appeal this decision and can continue to operate pending the outcome of an appeal. References to Uber’s ‘practice’ in this article are on the assumption that the company continues to operate as it currently does.
A typical example of a gig is a food order through a company such as Deliveroo:
Pret (hirer) —> Deliveroo (the platform) —> individual worker —> end consumer
A number of tax-related issues arise.
Is he/she self-employed or an employee of Deliveroo? If the latter, Class 1 National Insurance contributions (NICs) and pension entitlement come into play, whereas the self-employed have greater NIC advantages. Does he or she declare their income or even know that it is taxable?
As an aside to the gig economy, for people who regularly sell items on ebay, at what point are they trading for tax purposes? Do people who rent out their driveways declare this as property income on their tax returns?
This is invariably a larger VAT-registered business. It is quite possible that it will not be operating PAYE (nor will it want to). But should the operator have to assist workers with accounting and tax compliance? Should they be required to identify the workers to HMRC to facilitate fair payment of tax?
It will have no interest in the tax position of those delivering its food. It simply pays Deliveroo gross and does not engage in any tax considerations as it would deem these to be the remit of the operator or the individual worker. But should there be a withholding for tax on the amount of money paid to the platform operator by the hirer, similar to the Construction Industry Scheme?
It faces a huge compliance and communication problem. Workers (and hirers) first need to know their tax obligations and status and then need to be assisted in fulfilling them so that taxable income is properly collected. The hidden economy needs to be eradicated but there are also now significant practical barriers: rather than dealing with one company of 100 employees, HMRC might now be dealing with one company of five employees and 95 individual giggers.
It faces massive potential lost revenue as a result of a lower Income Tax and NIC yield – the Office for Budget Responsibility predicts the gig economy will cost the Exchequer £3.5bn in 2020-21.
VAT accountability is also a major problem. The majority of workers are not VAT-registered even though their service would be vatable if provided through a larger organisation. Uber drivers, for example, do not typically charge VAT, though this is currently being challenged at the High Court.
The Taylor Review, published in July 2017, has made a number of recommendations for employment practices in the UK in the wake of the changing employment landscape, but tax was not the focus of its attention. While the Review has argued for the alignment of the status tests for employment and tax, it remains to be seen exactly how the Government (and indeed HMRC, perhaps through the courts) will try to get to grips with the assessment and collection of Income Tax in the gig economy.
Clients who may operate online gig platforms or restaurants which might use them should certainly watch this space.