More and more employers and employees are favouring the so-called “gig economy”, where independent contractors and freelancers are hired as opposed to full-time employees. Temporary and flexible, these “gigs” are also free of contracts and as the tax law only recognises employed and self-employed, there are a number of UK tax issues which arise from the gig system.
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Building A Fairer System
The All Party Parliamentary Group (APPG) has submitted a report ‘Building a Fairer System: Tax and UK’s gig Economy’ outlining a range of changes which need to take place. The report showcases some of the benefits the ‘gig economy’ has brought about; such as flexibility to British workers, and innovation in terms of services and products offered to consumers, as well as shortcomings in terms of tax collections.
Challenges Of A Gig Economy
Serious challenges are faced in many sectors, for instance, fake, or mock employment has created a problem in terms of National Insurance Contributions. While problems are seen in corporation tax and VAT. Thus, as the gig economy grows, the UK faces serious setbacks in areas of funds for public services such as, housing, social care, health and education; not to be forgotten is growing concerns about the ‘fairness’ of the tax system.
The ‘Gig’ Economy Worker
People who are employed within this gig economy have multiple sources of income. Due to this system individuals are left confused about how to fill out a UK tax return form, also, apart from individuals who simply do not know how to fill out the tax forms, there are some who chose not to disclose their earnings via a gig economy. The result: these individuals are under risk of an HMRC enquiry and may face penalties resulting from any loss of revenue to the government.
What’s The Solution?
The APPG requests the government narrows the gap between the NIC’s paid by the self-employed and employees. However, an equalisation of the amounts paid is not asked for in lieu of honouring workers rights and benefits. Changes to the state pension entitlements will, however, reduce the differences between the two groups. The report asks that definitions of classifying hired people as “workers” for employment purposes and “employees” for taxation purposes be abolished; although the report overlooks the fact these changes could also foresee other problems such as including the same employees for apprenticeship levy and auto-enrolment.
This shift to a better classification in terms of employee status will have consequences such as the workers then having to pay National Insurance Contributions and also operate on PAYE. The change will not only equalise tax contribution amongst the employed in the UK, but will help HMRC in collecting their due taxes by reporting workers.
The main highlight of the report submitted by the APPG is the fact that gig companies exploit the UK tax system, VAT and corporation tax, thus eating away at tax revenue. The solution they perceive lies in international action with regards to tax laws within a gig economy. HMRC too, has been blamed for not being stricter in terms of enforcing UK tax laws. A solution is still a long way off with growing anticipation for a fair solution to what is in all rights a very beneficial system.