Online Platforms Could Pay Taxes for Self-Employed: U.K. Adviser

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By Ali Qassim

The U.K. Treasury’s tax simplification adviser has recommended online platforms like Uber Technologies Inc. and London-based food courier Deliveroo volunteer to pay employment taxes for workers who use their digital platforms.

The Office of Tax Simplification asked the government July 20 to propose making it optional for online platforms to offer their self-employed workers the Pay as You Earn system. U.K. employers use PAYE to withhold tax and national insurance contributions from employees’ wages.

Using PAYE “would remove the administrative burden” from individuals who use online platforms for self-employment, OTS Tax Director Paul Morton said in a statement. “It would also make tax collection more efficient.”

The OTS proposals come less than a month after a group of parliamentarians called for gig economy businesses to tax workers who use their platforms as employees. The All-Party Parliamentary Group on Responsible Tax also advised the government to clarify the distinction between “workers” and the “self-employed” for tax purposes.

In its third paper examining ways to improve tax collection around online platforms, the OTS also called for the U.K. tax office—Her Majesty’s Revenue & Customs—to adopt more technology to help the self-employed manage their taxes.

The number of individuals registering as self-employed has risen from 3.3 million—12 percent of the labor force—in 2001 to 4.8 million—15.1 percent—in 2017, according to the OTS.

PAYE Is ‘Effective’

The OTS argued in its paper that paying tax through an established mechanism such as PAYE “is effective because it reduces the risk of non-compliance.” It also helps the government collect taxes at minimum cost.

The OTS said use of PAYE should only be made optional in the short term because compelling platforms to operate a PAYE-type scheme for their workers “may require legislation” and “lead to additional costs for HMRC to administer these new arrangements.”

A spokesman for Deliveroo told Bloomberg Tax in a July 20 email that as “the first company to offer universal free insurance” to its workers, it welcomed “discussion about how more can be done to support popular and well-paid new ways of working.”

But Chris Blundell, an employment tax partner at accounting firm MHA MacIntyre Hudson LLP, pointed to the potential downsides. He said that by being specific to platforms like Uber and Deliveroo, the proposal “won’t capture all self-employed workers and runs the risk of creating more discrimination in an already complex arena. Hairdressers for example are often self-employed via a chair or booth-rental model, and other businesses could be harder to classify.”

Blundell also questioned whether the system would remove the tax administration burden from self-employed workers. “Their affairs would remain complex as, while tax would be deducted up front, they will still need to claim back tax paid on expenses via their tax return,” he said.

HMRC App for Self-Employed

The OTS called for HMRC to consider establishing a digital tax app to simplify the way people interact with them. HMRC “has a critical role in ensuring software applications designed for the self-employed to manage their tax affairs are fit for purpose,” the OTS said in a statement.

A spokesman for HMRC told Bloomberg Tax it will consider the OTS recommendations.

“We keep our administration of the tax system under regular review and have recently consulted on employment status and a call for evidence on the role that online platforms can play in supporting the compliance of their users,” he said.

A spokesman for Deliveroo said the food courier “is already putting into practice some of the OTS suggestions by trialing an app that makes it easier for riders to manage their finances and tax affairs.”

To contact the reporter on this story: Ali Qassim in London at correspondents@bloomberglaw.com

To contact the editor on this story: Penny Sukhraj at psukhraj@bloombergtax.com

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