HMRC's Gig Economy Crackdown
26th February 2018
With billions of pounds potentially in the balance, HMRC's been winding up to drop the hammer on the gig economy for a while now. Now that hammer has finally swung in what experts are calling the biggest employment status shake-up in 20 years. Here's what it all means.
Why HMRC looking at the gig economy?
An "employment status enquiry" kicks off when HMRC has a question about how people are being paid and whether their tax, national insurance and other matters such as sick leave and holiday pay are being handled correctly based on whether they should be classed as "employed" or "self-employed".
In the past there's been some shady business going on over so-called “false self-employment”. Basically, people who really should have been classified as employees were listed as self-employed instead. Their work conditions were pretty much identical to employees, but their tax situation was very different.
HMRC started kicking up a fuss about this, as it meant some employers were ducking their tax and National Insurance obligations. Meanwhile, a lot of workers were getting cheated out of rights and benefits that they should have had as employees. Things got complicated, with rules about umbrella companies, agencies, personal service companies and IR35 legislation started tangling up.
The rise of the gig economy has been a pretty big shift in the options people have over the way they work. It's taken some time for HMRC and the rules and regulations around pay and tax to catch up, but they're coming out aggressively now. Some pretty big companies, from the BBC to Uber, have already had tricky questions to answer over how they pay people.
It's going to take a while for the dust to settle and all the new rules to kick in. However, a few of the main changes include:
- Making agency worker pay more transparent.
- Granting itemised payslips to all workers.
- Giving gig economy workers clear advice about how the minimum wage affects them.
- Redefining “dependent contractor” status as a non-employee with worker's rights.
- The right to a contract for agency and zero-hours workers in the same post for 12 months.
Why is HMRC investigating this?
From HMRC's point of view, a lot of this is about clawing back the revenue it's been losing through false self-employment. They're actively chasing companies, and it looks like it's working for them. In the 2016/17 tax year, the investigations they've done have scored them an extra £819 million.That's up by 16% over the previous year.
They've been suspicious for ages about how firms were classifying their workers – and it looks like they were right. Of course, that means they're only going to keep pushing harder from here on. They've worked out it's more cost-effective to target whole businesses at a time, rather than chasing the workers individually. However, despite the gig economy being so big and growing so fast, HMRC's still taking the time to put the tiniest payroll details under the microscope.
Is there an upside to this for workers?
While a lot of this sounds pretty scary, it's important to realise that there's an up-side for workers. Being wrongly pushed into self-employment cuts you off from many of the rights you're entitled to as an employee. Things like paid holiday, sick leave and maternity pay are worth fighting for, and many people are being denied them unfairly. That's why it's so important to get your employment status clarified.
Talk to RIFT if you've got questions about what you're seeing in your pay packet or if you think you might be due a tax refund. If there's a problem or opportunity, we'll show you how to tackle or seize it.
RIFT are the UK's leading tax rebate and tax return experts. We've been in the industry since 1999 and are the only tax company to be awarded the ICS ServiceMark accreditation. If you would like an instant estimate of how much tax you could be owed, use our tax refund calculator.