Recent legal battles have drawn attention to gig economy workers, and the All-Party Parliamentary Group today published a report urging the government to address these issues. Below Nigel May, Tax Partner at MHA MacIntyre Hudson, comments on the report’s recommendations.
Recommendation 1: The difference between the definition of “worker” for employment purposes and the definition of “employee” for tax purposes should end.
“The characteristics of a worker and an employee have been reinforced following years of debate, case law and other legal proceedings. There’s a case for many people to be classed as genuinely self-employed, a status and level of flexibility that is much needed in the UK. To cast aside these rulings and considerations and apply new definitions or ‘badges’ would need very significant thought and a careful approach and application, that may still lead to ‘inequality’.”
Recommendation 2: The Government should narrow the gap between NIC (National Insurance Contributions) paid by employees and NICs paid by the self-employed.
“This is a process we’ve seen HMRC already start to implement in relation to the primary (employee) rate. However, with the secondary (employer) rate being 13.8% it’s not clear what the proposals would be to address that gap, and how that could be implemented. A move to increase self-employed national insurance would likely exacerbate the use of company structures by the self-employed so as to benefit from national insurance free dividend income.”
Recommendation 3: We call on the Government to rigorously enforce of existing law to avoid abuse of self-employment tax benefits.
“Bringing an end to the abuse of self-employment tax benefits isn’t that simple. HMRC is undertaking activities to introduce new laws, including IR35 in the private sector, but many of the issues relating to the gig economy relate to workers’ rights, which are being actively pursued by Unions and via Employment Tribunals, but don’t themselves address the tax issues.”
Recommendation 4: We urge the Government to clarify urgently the employment status of gig workers and to provide more information to those operating in the gig economy.
“Employment status and whether an individual is employed or self-employed is based on a number of tests and specific circumstances built up over time. These specific circumstances need to be considered on their merits, and a blanket status for business considered to be in the gig economy, as opposed to any other sector, may unintentionally create an uneven playing field. From an HMRC resource viewpoint, dealing with the question of employed or self-employed status is onerous because it’s fact-specific to each case. HMRC already provides an online tool to help identify whether an individual is in their view employed or self-employed.”
Recommendation 5: We urge the Government to press for further international action to fairly tax revenue earned in the gig economy, as well as acting more assertively in finding UK-based solutions.
“This recommendation is hopelessly vague. The explanation provided in the report is that there are charges of £1 billion levied to customers by 40,000 Uber drivers. It goes on to state that if the Uber UK subsidiary was seen as providing transportation services, it would have to account for this £1 billion revenue in the UK. The report suggests that Uber’s tax bill would likely to be hundreds of millions of pounds. This suggestion is made without any supporting backup and with a corporation tax rate of 19% and deduction for attributable costs, the suggested tax yield appears beyond over-optimistic.”
Recommendation 6: We call on HMRC to be more robust in enforcing UK law.
“The report states that “there are numerous business models in the gig economy and each has different implications for corporation tax and VAT. HMRC needs to scrutinise all of these and impose UK law consistently across all companies, regardless of their size and importance.” HMRC has always operated with a general approach of looking at time and yield. The suggestion that they should devote resources to everything regardless of size and importance given the extent and complexity of the tax code is simply naïve.”