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By Ben Stupples
Gig economy companies including Uber Technologies Inc. and Deliveroo would face major employment tax reforms under proposals set to be announced by an independent adviser to the U.K. Treasury.
In a discussion paper, the U.K.’s Office of Tax Simplification will seek views in the next four weeks on whether self-employed individuals operating in the gig economy who use online platforms like Uber would want these companies to take some responsibility for their employment and incomes taxes.
“We’re interested at the moment in how someone in the gig economy who works using a digital platform—the taxi driver, the courier, or the health worker, whoever they may be,” Paul Morton, the OTS’s tax director, told Bloomberg Tax in an exclusive interview. “We think that a lot of these individuals might think of themselves in the same way as someone who’s employed, and that they might be quite happy for somebody else to take care of their tax payments for them,” he said.
The recent rise of online platforms like the food courier company Deliveroo has drawn attention to the on-demand work for self-employed individuals that forms the basis of the gig economy. At the same time, these businesses have also increased scrutiny on different forms of employment taxation.
Under current U.K. laws, self-employed individuals are responsible for their own tax affairs, paying them in a lump sum at the end of each financial year. Those in full employment, by contrast, pay U.K. income and employment taxes through monthly salary deductions made by their employers.
“We’re expecting a spectrum of views on the discussion paper,” Morton said. “We’d like to see if it’s possible for people using these platforms to remain self-employed, as we’re not wanting to force anyone into employment status, and have an experience similar to the Pay As You Earn system.”
San Francisco-based Uber and London-based Deliveroo, both companies founded within the past decade, didn’t respond to Bloomberg Tax’s requests for comment on the OTS’s proposal.
Like touring musicians, self-employed individuals in the gig economy operate on a short-term, on-demand basis. While this form of work may suit some of these individuals’ lifestyles, it doesn’t come with the same benefits in the U.K. as full employment, such as the national minimum wage. As a result, self-employed individuals pay lower rates of employment taxes than those in full work.
Self-employed individuals have created almost half of the country’s employment growth since 2008, according to the Resolution Foundation think tank. By 2021, if this trend continues, the foundation’s February 2017 research says the U.K. may lose as much as 6 billion pounds ($7.9 billion) a year in employment taxes.
The upcoming work will mark the OTS’s most focused work yet on the gig economy, Morton said. For both businesses and the U.K. government, the technology doesn’t exist at the moment to allow the likes of Uber to assist with individuals’ tax affairs, but the OTS maintains an optimistic outlook.
“We have spoken to businesses about our proposal, and one or two have even thought about trying to do it themselves already,” he told Bloomberg Tax. “Some very big companies have said they’ll do this if it applies to everyone as they don’t want to be singled out and create market distortions.”
“My impression is that, as long as it was done fairly, there would be support” for the idea, Morton added. “We would see the end of the tax return for a lot of people.”
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