What is The Gig Economy?
05th July 2018
The gig economy. Depending on who you listen to, it's either the pinnacle of self-employment freedom or a massive scam at the expense of workers and HMRC. Employment law and tax regulations have been tying themselves up in knots trying to keep pace with it.
With potentially billions of pounds in the balance, it's not hard to see why. The way the UK works is changing rapidly, and the taxman's old tools are looking blunter every day. Here's a quick practical guide to making the best of gig economy life.
Freedom isn't free
Being self-employed can be an ideal lifestyle if you're cut out for it. You can pick and choose when, where and how you work. You decide your own hours and get to watch a business you built develop and grow. It's not for everyone, though – and all that freedom comes at a price. When you're self-employed, you usually have to give up some of the rights, benefits and protection that employed people get by law.
In the gig economy, companies hire staff as independent contractors for what are usually short-term jobs. Those workers are paid by the “gig”, rather than on a regular schedule. On the one hand, it's a flexible way to work that suits a lot of people. On the other, you really don't have any guarantees to fall back on. Many gig economy workers end up putting in the equivalent of full-time hours. However, since they aren't employees, they get no job security and miss out on some important rights.
Gig economy rights and wrongs
In the UK, employees of a business can generally expect sick pay, parental leave and a guaranteed minimum wage. These are all basic cornerstones of employment law. By treating everyone as an independent contractor, gig economy jobs tend to dodge all those fundamental rights.
Given that we're talking about somewhere approaching 16% of the total UK workforce, that's a lot of people working without the security and safeguards that protect more traditional workers.
Gig work is taxing
When you work from gig to gig, you're responsible for paying your own tax and National Insurance. That means registering for HMRC's Self Assessment system and filing yearly tax returns. Self Assessment can be difficult to get right and dangerous to get wrong.
When you're self-employed, you have to account for every penny you've got coming in. On the other hand, all the necessary expenses of running your business can be used to bring down your tax bill. It's a tricky system to get your head around, and a lot of people end up paying too much tax as a result. Worse still are the people who under-report their income or over-inflate their expenses, deliberately or not.
Fines and penalties are just the start of the trouble in store if you don't get your tax returns done right and filed on time.
You're under the taxman's microscope
There's been a lot of fuss kicked up by the taxman over the gig economy in recent years. Basically, HMRC believes that there's significant “bogus self-employment” going on in the UK. Billions of pounds' worth, in fact - and they're cracking down hard to put a stop to it.
False self employment essentially means that a company is avoiding its responsibilities to its workforce and HMRC by declaring employees to be contractors. This can be a pretty complicated legal knot to untangle, particularly with agencies, umbrella companies and Personal Service Companies to consider.
The legislation is badly out of date when it comes to dealing with the gig economy, and HMRC employment status challenges can be a nightmare for everyone. There are new rules apparently on the way to shift the balance more in favour of workers and generally tidy up the system. For now, though, the taxman's definitely paying attention.
You can always get help
Between the employment status crackdown and the Self Assessment system, being your own boss can turn out to be pretty stressful.
When the taxman's breathing down your neck, it's important to remember that you don't have to face him on your own. RIFT has expert teams to handle everything from filing tax returns to surviving HMRC challenges.
We're the only tax specialists to receive the ServiceMark award from the Institute of Customer Service, and we're here to help. We've been claiming tax rebates and filing tax returns since 1999. Get in touch to see how we can make the gig economy work for you. If you think you could be owed tax back, check out our free tax refund calculator and get an instant estimate of how much you could be owed.