OTS report: Introduce PAYE to gig economy workers
A new report by The Office of Tax Simplification (OTS) is suggesting the introduction of a PAYE option for gig economy workers, which would see operators such as Deliveroo or Uber assume responsibility for fulfilling the tax obligations of their workers.
The report, titled ‘Platforms, the Platform economy and Tax Simplification’, proposes that the platforms used by gig workers could withhold PAYE. This money would be paid directly to HMRC.
This would reduce the number of people submitting a self assessment tax return. “Such an arrangement might prevent quite large numbers of individuals having to submit a self assessment tax return and a computation of their self employment income.” The change would improve the “user experience” of dealing with HMRC, the report said.
The report was careful to note, however, that it “does not consider the current legal challenges being heard regarding the employment status of platform workers”. Gig Economy businesses like Uber, Deliveroo and Hermes are currently locked in a battle with its workers over employment status.
“This does not change the employment status of the platform worker,” the report stated. “However, for those who chose it, it would remove the administrative burden from these individuals, who can be some of the most vulnerable in the labour market and mean that they should not get an unexpected tax demand at the end of the year. It would also make tax collection more efficient.”
In addition, the OTS paper added: “Such an arrangement could also align with the government’s response to the Taylor Review of Modern Working Practices, where, for example, the government said that it would consult on the introduction of a mandatory payslip for platform workers.”
Is there an ulterior motive?
Perhaps unsurprisingly, the OTS’s idea has spurred a lot of reaction. Most notably, it has elicited criticism for adding yet more complexity to the tax system and potential unintended consequences for the self-employed and businesses.
“This proposal to make the taxation of certain self-employed individuals more closely mirror that of employees will have a number of unintended consequences,” said Andy Chamberlain, IPSE’s director of policy.
“The problem is the two are entirely separate and any attempt to treat them in the same or similar way for tax is likely to create significant problems, particularly for self-employed individuals.
“The self-employed could be left out of pocket because it isn’t clear how legitimate business expenses will be accounted for under such a system, or whether there will a mechanism to account for their more volatile incomes.”
Chamberlain also noted that this proposal could add further confusion to the already vexed issue of employment status. Despite the OTS’s attempt to swerve the issue, it’s hard to see how orchestrating a worker’s tax affairs could be seen as anything other than authority and control, the two defining principles of employment.
“There is also a real risk that this proposal would increase administration costs for online platforms which operate in competitive marketplaces. These costs would either have to be passed on to consumers, or absorbed by the platforms which risks reducing the opportunities for the self-employed.”
Reacting to the paper on LinkedIn, the CEO of the Freelance and Contractor Services Association (FCSA), Julia Kermode said the suggestion seemed “alarmingly similar” to IR35 reforms in the public sector.
“According to the article, the proposal would be optional for the workers and is positive because it saves the workers the hassle of sorting out their own financial affairs. Not sure I agree with that!” said Kermode. “But at least there would be an element of choice which is certainly positive, although such a choice is out of step with other tax rules, and so unlikely to happen in practice?”
Dave Chaplin, CEO and founder of contracting specialists ContractorCalculator, was more strident in his criticism, however. “This looks like more complexity being introduced into the system, rather than taken out of it,” Chaplin said.
“The reality is that the tax system has not kept up to date with the modern way of working. Government is concerned about the drain on the hidden payroll tax of employers’ National Insurance, and this is just another way to try and plug that gap.
“HMRC has already tried to reclassify self-employed by introducing a ‘guidance tool’ that has no basis in law, called CEST, which unwittingly pushes firms into thinking the self-employed workers they hire might really be employees.
“The government will not be happy until everyone is on the payroll, whether they are employees or not.”