The dictionary definition of “Gig Economy” or gig workers is “A way of working that is based on people having temporary jobs or doing separate pieces of work, each paid separately, rather than working for an employer.”
Digital platforms are playing a big role in shaping this economy. As a response to this way of working HMRC has adapted rules to ensure digital platform workers pay their share of taxes. Such workers are often referred to as Gig Workers.
Gig workers is an employment status where freelancers, independent contractors and individuals use digital platforms to find short term, on demand work.
Such platforms include ride sharing apps, food delivery services, freelance job boards as well as eBay and Facebook.
Such work may run alongside another employment or self-employment. Gig workers may have multiples gig income streams, but the platform operators will not expect any tax consequences arising from their users such as PAYE/NIC.
HMRC are introducing key changes to govern the tax treatment of such workers using these platforms. Such changes come into effect from 1 January 2024:
- Reporting of Earnings – Digital platform workers must report their earnings to HMRC. Platforms are obligated to share information with HMRC about the payments made to workers.
- Tax Deduction – The new rules will allow such workers to deduct certain business expenses from their earnings when calculating taxable income.
- NIC – Workers will be required to pay class 2 NIC and Class 4 NIC if earnings exceed the statutory thresholds. (This already applies to Self-employed individuals)
- Registration and Reporting – Workers must register with HMRC even if they have other sources of income and file an annual self-assessment tax return.
If the individual has only one income source and the gross income before deduction of expenses is no more than £1000 there is no requirement to file a Self-Assessment tax return.
Any profits earned from multiple sources of income are taxed progressively in line with Income Tax Thresholds.
Initially HMRC were sending letters to those workers whereby they believed income earned from online sales (via digital) platforms in a single tax year exceeded the tax-free personal allowance of £12,570 but this will be replaced by the new rules.