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OTS report: Introduce PAYE to gig economy workers

24th Jul 2018
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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.”

Replies (11)

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By SteveHa
24th Jul 2018 13:12

I can just see the engagers chomping at the bit to get saddled with a 13.8% bill.

Thanks (1)
By ireallyshouldknowthisbut
24th Jul 2018 13:45

Its staggering that the most complex option is always the proposed option.

As opposed to tightening the definition of employment, so all these people are on payroll in the first place as they ought to be, with full employment rights.

Creating an "underclass" of PAYE without rights is quite frankly outrageous in terms of social equality, and very much about the power of business being out of kilter with the power of the individual.

This is how unions started....

Thanks (5)
Replying to ireallyshouldknowthisbut:
By johnjenkins
26th Jul 2018 10:20

You forget. As a self-employed "worker" they are entitled to full employment rights.

Thanks (1)
Chris M
By mr. mischief
24th Jul 2018 16:08

Another winner from the Orifice of Tax Stupidity. Trebles all round at the bar, HMRC!

Thanks (2)
By tedbuck
26th Jul 2018 10:42

Don't know why they don't just combine IT and NIC into one tax thus solving IR35 and all similar problems. Still have to do something about Ers NIC I suppose but that could be included if everyone had a pay rise of 14%.
Actually why bother to pay people at all why not confiscate all their earnings and pay them pocket money - you could call it 'dole'.
Not really that much different from where we are headed now that Socialism is the new Mantra of the Conservative Party.
By the time people have paid VAT on half their spendable income plus Council Tax out of the remainder plus all the other bits and pieces of tax paid in one form or another to HMG such as IPT and RFT etc it's a wonder we have anything left and if we are thrifty and save for our old age HMG want to grab our savings to pay for those who haven't bothered to save and if there is anything left after care costs etc. HMG will take a big slice to waste on more daft projects.
What price encouraging people to provide for themselves?

Thanks (0)
By pauljohnston
26th Jul 2018 11:00

Surely a much simpler way would be a cis style deduction with a compulsory deduction certificate.

HMRC would collect its share without effecting the "worker".

From the number of gig economy workers I speak to it is evident that the OTS either has not done its research propertly or done none. Most of those I spoke to like the imformality and choice of working hours and having a naff employment status forced on them will only fracment the industry further

Thanks (3)
By andye
26th Jul 2018 11:29

Hospitals , Polce,Army has to be paid for. At present the likes of Google,Apple,Starbucks could take on gig workers instead of PAYE leaving HMRC to audit these workers. Thats a line I think HMG will not cross. Crazy thing is if these companies paid their taxes instead of hogging it offshore then the economy would get stimulated via HMG spending tax receipts on infrastructure. Mmmm or is that too simple

Thanks (3)
By Springfield
26th Jul 2018 17:37

At the risk of being the odd one out I think this is an excellent idea, and I know several self-employed people who would much prefer to pay a monthly tax rather than the horrors of the January & July tax bills.
Obviously much more work needs doing on this - not least the continuing issues created by the refusal of successive governments to merge tax and NI - but I think this is well worth pursuing, at least for those who would want the ability to choose this option.

Thanks (0)
Replying to Springfield:
By johnjenkins
27th Jul 2018 09:04

The self-employed can already pay their tax weekly, monthly or whatever.
The origin behind all this, including MTD, is to rid this country of the small self-employed business. HMRC would much rather have large concerns deducting PAYE and paying ers nic. They carry on to their detriment.

Thanks (1)
By Ian McTernan CTA
31st Jul 2018 11:02

Until they fix the root, why keep pruning the branches?

The real issue is NIC, which is just another tax. The complication is the employment tax, or ER NIC, which raises such a lot and is such a huge cost to the employer (and of which most employees are blissfully unaware!).

Merging ee NIC and IT is long overdue, makes perfect sense, but would be electoral suicide as it would seem like a massive tax hike for people.

Fixing ER NIC, now that's the real problem. Stopping it and giving everyone a 14% pay rise? Doesn't work, you only recover 30% of that 14%.

Many people like the gig economy and making deductions at source isn't really the way to make things simpler for the 'workers', just another complication we don't need.

When did the OTS cease to understand it's own name?

Thanks (1)
By AndrewV12
17th Sep 2018 09:41

To be fair some people who work in the gig economy have no idea where they stand, regarding Tax, employment rights, holiday pay, ect.

It all comes down to word of mouth. I think sometimes the likes of Uber create their own employment rules, knowing down the line, the advantages of their employment rules will be overhauled by the courts, but they get a free hand for a few years.

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