Workers in the gig economy could soon have income tax deducted from their earnings if the government accepts the recommendations of its independent tax advisers.
In a discussion paper published on Friday, the Office of Tax Simplification recommended compelling gig economy platforms, such as Uber and Deliveroo, to offer to withhold tax on behalf of workers and transfer it to HM Revenue & Customs.
The move would ease the compliance burden faced by gig economy workers — who are treated as self employed for tax purposes — while increasing tax payments to the exchequer.
As self-employed taxpayers, gig economy workers currently enjoy a status that generally gives them lower national insurance payments. But they also have more compliance responsibilities, with significant tax bills at the end of the financial year that often plunge people into debt.
Paul Morton, tax director at the OTS, said the government should consider “whether online platforms could operate a system equivalent to Pay As You Earn, deducting tax from earnings and thereby taking responsibility for fulfilling the tax obligations of their workers”.
The OTS said that participation in the scheme should be voluntary for individuals, but if many chose to opt into a PAYE system of tax collection, it would further blur the lines of differentiation between self employment and employment.
Mr Morton said the change would “remove the administrative burden” from gig economy workers and “mean that they should not get an unexpected tax demand at the end of the year”.
But the OTS stressed that it was not trying to intervene in legal disputes involving workers in the gig economy. Individuals contracting with Uber and Pimlico Plumbers have recently won employment cases to be classified as “workers”, a status that affords them certain benefits, such as holiday pay and protection from disability discrimination. Deliveroo riders lost a similar case.
The OTS said the government would be able to reduce tax evasion and increase payments to HMRC, even with a voluntary scheme.
“Paying tax through an established mechanism such as PAYE is effective because it reduces the risk of non-compliance,” the body said in the discussion paper. “For example, tax might be paid to HMRC on a monthly rather than annual basis and tax is collected at minimum cost to the government.”
The number of number of self employed people has risen from 3.3m in 2001 to almost 5m in 2017, with 1.3m of those classified as self employed working in the gig economy.
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