Introduction:
In a world that’s constantly evolving, the way we work is no exception. The gig economy, often referred to as the “Gig Economy,” has revolutionized the concept of work. It’s a way of working where individuals take on temporary jobs or separate pieces of work, each paid separately, rather than being tethered to a traditional employer. The gig economy encompasses a wide array of roles, from driving for ride-sharing services to offering freelance services in fields like coaching, fitness training, and tutoring. What’s particularly fascinating is how digital platforms have become the linchpin, connecting gig workers with short-term, on-demand work opportunities.
The Gig Worker:
Gig workers are the lifeblood of this new employment paradigm. They are the individuals who have chosen to embrace an employment status characterized by freelancing, independent contracting, and using digital platforms to secure short-term work. These digital platforms are as diverse as the work itself, including ride-sharing apps, food delivery services, freelance job boards, and even e-commerce platforms like eBay and Facebook Marketplace. Gig work often complements other forms of employment or self-employment, providing gig workers with multiple income streams. It’s important to note that the operators of these platforms don’t classify their users as traditional employees, which has significant implications for tax and reporting.
Key Changes Coming in 2024:
As we look ahead to 2024, significant changes are on the horizon, particularly in how gig workers are taxed. HM Revenue and Customs (HMRC) in the UK is rolling out a series of pivotal changes to govern the tax treatment of gig workers who rely on digital platforms. The primary aim of these changes is to enhance tax compliance and revenue collection. Here’s a closer look at the key changes
Reporting of Earnings:
- Gig workers will be required to report their earnings to HMRC.
- Digital platforms will have an obligation to share information with HMRC about payments made to gig workers.
National Insurance Contributions (NIC):
- Gig workers will now need to pay Class 2 NIC and Class 4 NIC if their earnings exceed statutory thresholds. (It’s worth noting that this already applies to self-employed individuals.)
Tax Deduction:
- Under the new rules, gig workers will be allowed to deduct certain business expenses from their earnings when calculating taxable income.
- This involves filing an annual self-assessment tax return.
Low-Income Exception:
- An important exception to the new rules is that if an individual has only one income source and their gross income before the deduction of expenses is no more than £1,000, there is no requirement to file a Self-Assessment tax return.
Progressive Taxation:
- For those gig workers who earn income from multiple sources, the new rules will apply a progressive tax structure in line with Income Tax Thresholds.
HMRC’s Response:
Previously, HMRC had been sending letters to gig workers whose income from online sales platforms exceeded the tax-free personal allowance of £12,570. However, this approach is evolving. HMRC is putting in place a non-retrospective timeline for implementing these changes.
Countdown to Compliance:
- Both platform operators and users are under the clock.
- Platform operators will need to familiarize themselves with the new rules and the penalties for non-compliance before collecting information starting on January 1, 2024.
- The first reports are due to be submitted to HMRC by January 31, 2025.
Further Guidance:
HMRC have developed a page of guidance for online sellers (which includes those in the gig economy), which has some examples of when someone is trading which you may find helpful.
By law, newly self-employed people must notify HMRC by 5 October in the tax year following that in which their activity began or risk a penalty (unless their income from it is fully covered by the trading allowance – see later). For example, if Niall begins trading in the tax year 2023/24 (which runs from 6 April 2023 to 5 April 2024), he must tell HMRC by 5 October 2024. The easiest way to do this is to fill in the form CWF1 Or contact Horizon&Co ltd at info@horizonandco.co.uk one of your professional advisers will be able to help you.
