Tax Change for U.K. Gig Economy Comes With Hurdles

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By Ali Qassim

A U.K. proposal requiring the platform economy to pay employment tax for their workers would likely raise costs and workloads for the companies, which include Uber Technologies Inc., practitioners warn.

Many self-employed individuals are also likely to resist the proposals since they “currently enjoy the cash-flow advantage of paying their tax at year-end,” Lee Hamilton, a partner at London-based Blick Rothenberg, said in a July 30 statement.

The warnings follows a July 20 recommendation from U.K. Treasury’s adviser, the Office of Tax Simplification. The plan would bring about a shift—in which platforms would use the established Pay as Your Earn System to withhold tax and national insurance contributions from their self-employed workers’ wages. It fits into a broader focus from the government on the tax treatment of self-employed individuals in the burgeoning gig economy.

But given the government’s drive to maintain tax revenues, “it is likely that the government will support the principle of a withholding tax for platform workers since it means that tax is more likely to be collected,” Hamilton said.

Self-employed individuals have created nearly half of the U.K.’s employment growth since 2008, according to the Resolution Foundation think tank. The U.K. may lose as much as 6 billion pounds ($7.9 billion) a year in employment taxes by 2021, if the trend continues, according to the foundation.

Uber didn’t return a request for comment.

Helping Self-Employed Individuals

British employers “want to see a level playing field between agency work and the gig economy and it’s good that this is an area the OTS is looking at it. In principle anything that makes it easier for individuals to pay the right amount of tax is to be welcomed,” Sophie Wingfield, the head of policy at the Recruitment & Employment Confederation, told Bloomberg Tax July 30.

Under current law, workers file a self-assessment income tax return and pay the bill in a lump sum at the end of each financial year.

“It often means that these workers are caught out by the revenue and are fined for not making their returns on time or at all,” Hamilton said. The proposals could make it easier for platform workers, he said.

‘Ironing Out’

Still, “there are a number of areas which still need ironing out,” such as how the PAYE proposals “would work for individuals working across multiple platforms,” Wingfield said.

IPSE, an association for freelancers and the self-employed, also questioned the potential pitfalls.

“There is “a real risk that this proposal would increase administration costs for online platforms which operate in competitive marketplaces”, IPSE’s Deputy Policy Director and External Affairs Andy Chamberlain said in a July 30 email statement.

Mike Cherry, the national chairman of the Federation of Small Businesses, told Bloomberg Tax in a July 30 email that “it’s vital that any reforms in the gig economy space do not negatively impact the genuinely self-employed entrepreneurs that we represent.”

Any new regime, he said, should make it easier for people to set themselves up in business “rather than acting as a further disincentive.”

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