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HMRC nudges gig-economy workers to confess

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The Revenue has chosen the week commencing 16 January to start hassling online sellers, gig economy workers and influencers for tax they may owe on undeclared sales.

20th Jan 2023
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HMRC’s new one-to-many letter campaign was launched in mid-January. HMRC expect to send thousands of nudge letters to individuals who earn significant amounts from selling goods or services online, or who receive value for creating online content. 

Nudge nudge

There are two forms of nudge letter going out to two specific categories of taxpayer.

Letter 1 is directed at those who sell goods or their own services through online marketplaces. This includes people who sell items on eBay or Etsy, taxi drivers who find their rides through platforms such as Uber or Lyft, and self-employed delivery drivers.

Letter 2 is addressed to people who have created online content and who generate money from that work; authors and influencers may fall into this category.

 “With so much of the UK economy going online since the pandemic, it is surprising that HMRC has not focused fully on this area before,” commented Dawn Register, Tax Dispute Resolution partner at BDO commented.

“HMRC has information from online marketplaces already. Online content creators are a specific target so online ‘influencers’ as well as more traditional sellers and casual workers bidding for work online can expect to be contacted.”

What is significant?

The nudge letters say HMRC has information that the individual has not declared all or some of the income from online sales or from creating content on digital platforms. 

However, HMRC told the CIOT that the letters are only being sent where it has information that the recipient has traded and has earned more than £12,570 from their online sales.

It isn’t clear what periods the income is supposed to have arisen from, as HMRC makes no mention of dates in the nudge letters. But the periods covered are likely to be prior to 2020/21.

Dirty data

For the tax authority to assert that a taxpayer has not declared taxable income, it must be fairly confident it has correctly identified the right individual as a recipient of this campaign. 

Online influencers do not always operate under their full given name, so the HMRC Connect database may need additional data points in order to match a famous face to a national insurance number or UTR number.

 

In fact, the NI number is not a unique identifier and not every UK resident has one. Individuals who were born abroad or whose parents did not claim child benefit may not have been allocated an NI number when they turned 16.      

Online marketplaces don’t always ask for a full name, address and NI number when registering a user on the site. This could make the data provided to HMRC rather ‘dirty’ and prone to error.

What is taxable?

The monetary information HMRC has received from online marketplaces is likely to be restricted to amounts of gross sales or the commission paid to the individual. The taxpayer may well have deductible expenses to set against that sales income, including the use of home allowances. This means that the gross sales figure HMRC has received will not equate to the individual’s taxable income.

There may be cases where the sales income is over £12,570 but the net amount is covered by the personal allowance. In such cases, where the gross income in a year exceeds £1,000, the taxpayer should register their trade with HMRC and complete a tax return.  

Disclosure decision

Both nudge letters ask the recipient to make a disclosure using the online digital disclosure service (DDS) facility if they have undeclared earnings.

They are also asked to complete and return an attached form which is labelled “certificate of tax position” that includes a declaration of honesty and completeness.

The CIOT recommends that taxpayers in this position do not complete the certificate of tax position, as there is no legal obligation to this, and the declaration on the certificate is not limited to a particular tax year.

How to reply  

ICAEW has confirmed that HMRC will accept a reply to the nudge letter in any of the following formats:

  • A completed certificate of tax position form signed by the taxpayer
  • A letter from the taxpayer or their authorised agent that confirms whether the individual needs to make a disclosure and why
  • A phone call from the taxpayer or their authorised agent confirming whether the taxpayer needs to make a disclosure or not, and the reason why.

In any event, the taxpayer should strive to reply to HMRC within the 30-day deadline given.

Using the DDS to make the disclosure may not always be the best option. If fraud is suspected it may be better to use the Code of Practice 9 process, in which case expert advice from a tax investigations specialist should be sought.

Replies (5)

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By Jdopus
20th Jan 2023 16:22

How convenient for these large, politically connected multinational companies that HMRC has taken the decision to pursue thousands of below minimum wage workers for this tax instead of the companies.

These "gig economy firms" have built their business model around ducking employment rights and it's a joke that the ultimate recourse from the UK government has been to pursue the employees who have been deprived of their rights rather than the companies themselves.

Thanks (7)
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By Hugo Fair
21st Jan 2023 15:02

"For the tax authority to assert that a taxpayer has not declared taxable income, it must be fairly confident it has correctly identified the right individual as a recipient of this campaign" ... in an honourable world, maybe.

But in the land of modern HMRC, where the main measure is reduced costs, a scatter-gun approach on a part-qualified basis meets all their criteria.

Where's the downside in sending a letter to an unwarranted recipient (and at negligible cost)?
It's really no different to the logic behind the Nigerian Prince scammers - with similar morality.

Thanks (3)
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By jonharris999
22nd Jan 2023 06:54

"There may be cases where the sales income is over £12,570 but the net amount is covered by the personal allowance. In such cases, where the gross income in a year exceeds £1,000, the taxpayer should register their trade with HMRC and complete a tax return. "

Just to note that this is controversial - see for example

https://www.accountingweb.co.uk/any-answers/what-is-the-penalty-for

HT to Richard Thomas and the LITRG for the clearest answers on this.

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By Catherine Newman
23rd Jan 2023 11:11

I can't name the organisation but I was told that there a lot of people who don't pay tax. The client who told me came through another client. He seemed quite upset when he told me that there were a lot of people not paying tax but I said at least he could sleep at night. I haven't been told any names but when I asked another client it was confirmed. I was told that quite often foreign people take these jobs and send the money home. This is obviously only hearsay. It will be interesting to see how many people register. They will have 3 months to file a return but should pay by 31 January.

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By Catherine Newman
02nd Mar 2023 14:24

I have had two queries since my post. One seems to be safe. One might not be. Could this be my niche?

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