Although private and public hire are longstanding trades, in recent years, more and more people have opted for flexible work such as ridesharing and food delivery. This is referred to in the media as the ‘gig economy.’ So, governments have had to address tax challenges posed by this kind of work.
The UK government has introduced new legislation that requires ‘online platforms’ to directly report the income details of their sellers (drivers in this case) to HMRC. Let’s explore this legislation’s impact on drivers and the platforms they work for.
HMRC mandates that digital platforms operating in the UK must report income details of their sellers to HMRC. This information includes earnings, the number of journeys or deliveries completed and expenses incurred by the drivers.
This legislation aims to improve tax compliance in the gig economy, ensuring drivers pay the right amount of tax on their income. However, this is only for what’s called a digital platform, not necessarily private hire operators.
1. App earnings will be more evident to HMRC: before, it was easier for workers to earn money under the table. Now, because platform app companies must share earnings information with HMRC, it is harder for drivers to avoid paying the exact correct amount of tax.
Example: Sarah, a part-time Uber driver, now receives annual tax statements from Uber directly, outlining her earnings and deductions. This makes it easier for her to file her taxes accurately.
2. Clearer tax rules for drivers: the new law makes it easier for drivers to understand how much tax they need to pay. Now, drivers can easily determine how much they have earned and spent.
Example: John, a food delivery driver for Deliveroo, used to struggle with calculating his tax liability. With Deliveroo reporting his income to HMRC, John can now easily determine his tax liability and ensure he pays the correct amount.
3. Potential financial impact: while the change aims to make people better at paying taxes, it can also have financial implications for some drivers; those who previously underreported their income may now have to pay higher tax bills.
Example: David, a self-employed courier, used to underreport his earnings. With HMRC receiving detailed income reports from his platform, he may face a higher tax bill than he expected, impacting his disposable income.
More admin: platforms must collect and report income data to HMRC. This includes setting up systems to record and transmit this information.
More accountability: platforms are responsible for the tax ‘compliance.’ Failure to report income details accurately can result in penalties, forcing platforms to put proper reporting systems in place.
Increased education and training for their drivers: in response to the legislation, platforms are implementing measures to educate and support their drivers in meeting their tax obligations.
• The definition of a digital platform has yet to be made clear to us in the ground transport industry.
• One thing to understand is that operators and despatch software are not necessarily included in the legislation.
• The HMRC has stated that it is ‘already working’ with the relevant platforms. That means that if you haven’t heard from them, your business may not be covered under the ‘platform.’
• In April 2022, we saw the introduction of conditionality Tax Checks. This made every driver and operator obligated to declare their tax status. So, there are rules already in place.
• Most of the platforms covered by the new legislation are open marketplaces that match sellers to buyers. Examples are Booking.com, eBay, Etsy as well as ridesharing apps such Uber, Bolt, OLA and Freenow.
• Private hire tech exists in a different space because it pairs operators with drivers, who are already regulated through their relationship with the licensing authority.
The HMRC reporting legislation may represent a significant change for app drivers. However, HMRC insists that: “It brings greater transparency and clarity to the tax obligations of individual drivers while placing additional responsibilities on gig economy platforms.”
However, if you are an operator and if the HMRC has not approached you to sort out your reporting, the chances are you are not affected by it.
That means that if you are a driver working for a traditional style operator, you are also not affected by the new legislation.
I’ve heard of reports of operators gathering National Insurance numbers and drivers getting worried. My message is that you can rest easy for now.
If you have any questions or are worried about your situation, please do not hesitate to contact me:
Gary Jacobs, Eazitax
www.eazitax.co.uk
020 8529 2600
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