The OTS makes the case for simplified tax for platform workers
As self-employment figures and the ‘platform economy’ continue to rise, questions are being asked as to how is best to tax platform workers’ income, to ensure that they understand their tax obligations and can engage with the tax authorities is a simple, efficient and effective manner.
The Office of Tax Simplification (OTS) have recently released a paper setting out key recommendations to both the government and HMRC, as to how implement changes to tax administration to reflect this new way of working.
Foundations for this paper and its recommendations can be traced back to this time last year, when the OTS published a focus report looking into the tax issues that arise from the gig economy. Whilst that report did not make specific recommendations, it did identify a number of features the body deemed important to consider when looking at how to simplify gig workers’ interaction with the tax system:
- Individuals with multiple income streams from different platforms
- Facilitating – indeed encouraging – tax payments on platform incomes
- Designing a system to help the taxpayer pay the correct tax and national insurance
- The involvement of the engager; whether ‘employment taxes’ are due; and the impact of VAT.
Fast forward to the Chancellor’s 2018 Spring statement, and HMRC also called for a consultation on the role platforms should play in ensuring that users comply with their tax obligations. This included all who receive any type of income from using digital platforms, whether they be platform workers, letting out spare rooms through sharing platforms or selling goods on market place based platforms.
Adding momentum, the government’s response to the Taylor review additionally set out a number of actions to look into the questions it raised about employment, including how best to clarify the employment status of people who are working in new ways, such as those using platforms.
A significant risk to the platform economy is that people are either put off from taking up platform work because they do not want to be self-employed (given the resulting responsibility for managing their own tax affairs), or do not realise their tax obligations, including those who do not think working a couple of extra hours a week incurs any tax liability, and that there is subsequently no need to declare it. As a result, the OTS states in their latest paper that HMRC have a critical role to play in ensuring that any new commitments following the government’s post-Taylor review consultations, are reflected in improved and well publicised guidance for platform workers (and equally I would urge, those that use their services such as Uber and Deliveroo).
To pave the way to simplified tax administration, the paper suggests it is time for the government to consider enabling platforms to operate PAYE for their self-employed workers, as is the case for agency and construction subcontractor workers. This may remove a barrier to working through platforms without becoming entangled with the wider employment considerations under review, for example whether platform workers are being unfairly treated in terms of their employment status.
If this growth in self-employment is to be sustained, then technology has a role in removing barriers for those individuals in terms of engaging with the tax system. The private sector is credited in the paper for its progress in simplifying the management of tax obligations for self-employed people and small businesses, through software packages and business bank accounts.
With the market for such products ever growing as ‘Making Tax Digital’ moves forward, the OTS states that HMRC will need to continue to consider how to ensure existing and new applications can most easily interface with their systems, in order for smooth and consistent engagement between the two.
The paper ends with a strong recommendation that HMRC continue to be fully engaged in and committed to ensuring new technological solutions are fit for purpose and meet the regulatory and legal standards required to fulfil a person’s tax administration.
In summary, to simplify platform workers’ experience of tax, the paper outlines the following recommendations:
- The Government consider the case for enabling platforms to operate a system equivalent to PAYE for self-employed platform workers (without affecting their employment status)
- HMRC continue to focus on the development of guidance and to ensure that this is readily available and targeted – especially at people who may unknowingly generate tax liabilities
- HMRC consider how best to facilitate technology developers and others to provide reassurance to the burgeoning self-employed that digital applications are fit for purpose in submitting accurate data and returns as necessary
- HMRC consider to what extent they can play a role, in partnership with the software industry, in facilitating the creation of an app to help self-employed people manage their tax affairs
Given the strength in the turning tides towards increasingly agile, smart and independent ways of working, the onus is now fully on HMRC and the government to take on board such recommendations. It cements the view of many commentators that the distinction between the tax and employment law treatments of platform workers is unhelpful. All those platform workers who have been successful in the last year at Pimlico Plumbers, Uber, City Sprint and Hermes in convincing tribunals that their worker status be recognised for employment law purposes: holiday pay, national minimum wage, statutory payments and pensions, are still treated as self-employed for tax. This of course suits the platform businesses as it removes the issue of the cost of employer NICs. The OTS acknowledge that it is the saving of employer NICs and apprenticeship levy that has encouraged the rise of the gig economy. If the Government does adopt the views of the OTS, the tax treatment of workers and employers would be the same for both the individual and the hirer, the key difference then would be the lack of mutuality of obligation so retaining the flexibility that platform workers and their hirers crave over a standard employment model.
This blog has been pieced together from extracts of the OTS’s latest tax simplification for platform workers paper. The full report can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/726943/OTS_platform_paper.pdf