The office of tax simplification has released details of a focus paper which will look in to tax issues surrounding the gig economy.
The gig economy is a term that has been used a lot recently to describe working patterns and conditions. It has mainly been used to describe individuals who are currently classing themselves as self-employed and provide services to tech companies, such as Uber and Deliveroo. There are positives and negatives to each treatment for workers, which will vary depending on individual circumstances.
HMRC have a particular interest in this, as ultimately the tax receipts they receive are affected by the treatment. Usually HMRC consider the overall picture in each case to decide on whether someone is self-employed or employed.
One difference with companies such as Uber and Deliveroo is the scale on which individuals have classed themselves as self-employed. When drivers were treated as self-employed it meant they were not entitled to holiday pay or the national minimum wage.
All self-employed individuals can claim allowable business expenditure against their income on their tax returns. If HMRC rules that drivers should be given employment status, this may mean they disallow a number of expenses that have been claimed, which may ultimately lead to higher tax liabilities for drivers and Uber for unpaid Employers NIC`s.
It may also affect other cases, as HMRC will need to consider facts of the case that lead them to apply the employment status. The principles that drive each decision may be considered in deciding whether the overall picture is one of employment or self-employment.
If HMRC decide that Uber drivers should be treated as employed, it will also affect customers. It may even ultimately force Uber to consider the business model it uses in the UK. If the drivers are employed by Uber and the customer is provided a service by Uber, VAT will be charged on the fare, whereas currently they receive the service from the driver. This means if the driver is not over the VAT threshold (or registered for VAT) then no VAT will be charged on the fare.
We can advise on the correct status of employment or self-employment to make sure the treatment given is correct. HMRC can go back and challenge the treatment for previous tax years if they believe the wrong treatment has been applied.