Could we see a multifaceted tax sting on the gig economy?

Businesses engaged in the gig economy will be watching events over the coming months with a little trepidation. The publishing of the findings of Matthew Taylor’s review of modern day work practices this summer will provide insights into the way in which worker’s rights to pensions, annual leave and sick pay is likely to move. In addition, there is the scheduled hearing in September of Uber’s appeal of last year’s ruling granting worker rights to its drivers.

The recommendations from the Taylor review together with the decision on the appeal by Uber may lead to calls for HMRC to consider the taxation aspects of changes in employment status.

‘The most obvious of these is the area of self-employment or employment in relation to those engaged by companies who operate in the gig economy,’commented Graham Farquhar employer solution partner in RSM.

‘Currently those with worker status have been treated as self-employed for tax purposes, but if this was to change and they were to be regarded as employees by HMRC, then the companies would end up paying an additional 13.8 per cent in employers national insurance contributions (NIC).'

‘Recent reports from the House of Commons have said that it should be the employer who determines whether the individual is employed or self-employed. It will be incumbent on the employer to ensure that they make the correct decision or they could end up being responsible for the tax under PAYE as well as employers NIC,’ said Farquhar.

But employment taxes are not the only area where HMRC may have an interest. David Wilson, VAT director in RSM, commented:

‘If we thought the direct tax and NIC issues in business models like Uber’s are complex, the VAT consequences for Uber, its drivers, and its customers - and indeed similar business models - take complex to a whole new level.’ 

‘The primary reason that VAT is not charged on Uber taxi fares is that, for VAT purposes, the supply has, to date, been seen as a supply by the self-employed tax drivers, the majority of whom trade below the UK’s VAT registration threshold, currently at £85,000. Under the current UK business model, Uber therefore merely acts in an agency or intermediary capacity and as such, VAT has not been an issue.’

‘However where the business or employer is considered the principal in the supply chain, the consideration paid by end customers would greatly exceed the VAT registration threshold, exposing all such businesses to a VAT bill for its supplies.’

Wilson also pointed out that if workers were to be regarded as employees for PAYE and NIC purposes, any retrospective application would undoubtedly result in backdated corporation tax computations by the employers.’

Farquhar concludes ‘When Philip Hammond's proposed ‘tax raid on the gig economy’ was labelled potentially devastating, perhaps a more pertinent description would have been multifarious.’