What is a gig economy?
This is a term you may have seen a lot in the press recently (in relation to Uber and Deliveroo) but what does it mean and how might it affect you?
What does it mean?
One definition is that it is ‘a labour market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs’. Each piece of work is like an individual ‘gig’.
The opposing views are that it is either a working environment that offers flexibility with regard to employment hours, or… it is a form of exploitation with very little workplace protection.
One estimate says that the gig economy accounts for 1.1 million people in the workplace. This is as many as the UKs largest employer the NHS. Some estimates put it at several million.
What are the issues for you?
As someone using gig workers:
- Employment status
- Employed – entitled to full time employment rights after 24 months
- Worker – broadly an individual with a contract who has basic employment rights
- Self Employed – no entitlement
- Tax status
One issue is the employment status of the person working for you and this is what all the publicity surrounding Uber, Deliveroo etc has been about.
There are three different employment categories:-
In February this year London firm, Pimlico Plumbers lost it’s appeal against a previous ruling that said one of its long-serving plumbers was a worker – entitled to basic rights, including holiday pay, sick pay and minimum wage – rather than an independent contractor. This was also the case with Uber where the 2016 ruling said drivers were workers. Uber have now been granted the right to appeal and the hearing starts in September.
Currently there are only two status categories for tax purposes employed or self-employed. If someone is employed as an employer you deduct PAYE tax and National Insurance and pay it over to HMRC. If someone is self-employed they are responsible for their own tax and national insurance. Someone’s employment status can therefore be key with regard to how they are taxed. There is a tool provided by HMRC which checks employment status for you and on this basis tells you how that person should be taxed. Search for ‘ employment status indicator’.
Please note that if you incorrectly treat someone as self-employed when in fact they are employed you will be responsible for any back taxes and may also be subject to penalties.
As a gig worker:
- Employment status
- Tax status
It will be important your employment status is correct to make sure you get the correct entitlements. You may well be a worker for employment rights, but will still pay tax as self-employed.
HMRCs ‘employment status indicator’ will help you determine your tax status and you can then compare that to how the person paying you thinks you should be taxed. It is important to get it right so that you meet your obligations with regards to reporting and paying tax. If you are self-employed or employed and self-employed you will need to complete a tax return each year and pay tax and Class 4 national insurance.
As a self-employed person you must keep full records including bank and credit card statements, invoices, receipts. Please contact us for full details.
The future of the gig economy
In July 2017 an independent review of modern working practices by Matthew Taylor (who was an adviser to Tony Blair and is chief executive of the Royal Society of Arts) was published. It considers the implications of new forms of work on worker rights and obligations as well as on employer freedoms and obligations. It set out 7 principles to address the challenges facing the UK labour market.
One of the recommendations of the report is that the government creates a new category of worker known as a “dependent contractor” that sits between contractors and those in full employment, and brings with it some benefits and wage protections. The Trades Union Congress (TUC) has also pointed out that when employees are underpaid, the government earns less in taxes and national insurance, and pays out more in credits and benefits. They calculate the loss at billions of pounds a year.
In a paper published by the Office of Tax Simplification they state that HMRC has significant communications issues as a result of the gig economy. They need to make sure the worker is informed about their tax obligations and help educate them in complying.
The OTS’s role is to look at aspects of the tax system and develop recommendations for simplification. In the context of the gig economy, a key issue is how such workers interact with the tax system and how that interaction can be made as simple as possible. Considerations have to include:
- individuals with multiple income streams from different ‘gigs’
- facilitating – indeed encouraging – tax payments on gig incomes
- designing a system to help the taxpayer pay the correct tax
- the involvement of the engager
- whether ‘employment taxes’ are due
- the impact of VAT Pensions will also be a big concern.
These are cross government issues, impacting on employment status, tax status, pensions and welfare.
It is also hoped that with the introduction of Making Tax Digital it will be easier for gig economy workers to pay the right tax.
If you are involved with the gig economy, either as an organisation or individual, we, at V J Hancock and Co, can advise and assist you in meeting your obligations.