The sharing economy – labour and the gig economy
Anita Monteith of ICAEW’s Tax Faculty explains how to account for trades in the sharing economy, specifically how tax and national insurance work in the gig economy.
In a previous article, 'Tax and the sharing economy', I looked at the sharing economy in general. In this piece I want to focus on sharing time – spare time or all your time – and the gig economy. The tax (and I include national insurance contributions (NIC) as a tax) considerations can’t be ignored.
What is the gig economy?
When I was a student, going to a gig usually meant going to watch a live band. Now it can also mean taking on a short-term contract of work. When people talk about the gig economy, what they usually mean is a world where people earn their living by taking on lots of short-term assignments. Sometimes this is in addition to having a full-time day job, or to supplement a pension, but for many people, income earned through gigging can be their only source of income, through either choice or necessity.
According to the Cambridge Dictionary a gig 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”. The Oxford English Dictionary defines it as: “A labour market characterised by the prevalence of short-term contracts or freelance work as opposed to permanent jobs”. But does that necessarily make all gigs self-employment?
How does the gig economy work?
What has undoubtedly boosted the growth of work undertaken in the gig economy is the easy availability of work through digital sharing platforms. Compared to a gig offered through a card in the newsagent’s window, an internet-based platform has the potential to reach anyone anywhere in the world. This often leads to a more competitive bidding process as potential bidders make themselves available internationally. While offering UK tax return services may be specific to geographical boundaries, website design is not, and translation services positively thrive across borders for obvious reasons.
Peopleperhour.com advertises that it will “get your job done in hours. No hassle, no overheads, no agencies”. If you want a freelance book-keeper, accountant or weight loss supporter, or some marketing advice, you list your project and wait for prospective workers to submit their proposals. If you have a service to offer, you list yourself as a freelancer available for contract work. The contract is between the two of you and not with the platform, which is at pains to explain that it is not an agency.
The platforms distance themselves from the contract between the engaging business and the freelancer and usually earn their commission by charging a fee which they deduct as they process the payment being made under the terms of the contract, and only when the work is completed satisfactorily. Taskrabbit.co.uk uses the same model for those wanting, or offering to do, home cleaning and repairs. These platforms argue they are merely putting people in touch with those who might need their services.
It’s all very clever really. But certainly, the stakes are high and undoubtedly we are going to see more litigation around work in the gig economy. If workers’ rights are found to apply, someone has to bear the cost. If paid holiday is going to be given to workers, those workers may find the hourly rate they are offered goes down in proportion; it won’t necessarily be the platform that pays.
On 28 October 2016 the Employment Tribunal decided the case of two workers who drove for Uber.com (Mr Y Aslam, Mr J Farrar and Others v Uber BV, Uber London Ltd and Uber Britannia Ltd case numbers 2202551/2015 and others). Uber’s lawyers had argued that Uber was merely an intermediary connecting drivers with people who wanted rides and the drivers were self-employed.
The tribunal considered the facts and decided that, in employment law terms, the drivers were actually workers (working for Uber) rather than self-employed. The decision, if upheld, will give the two drivers workers’ rights such as entitlement to the national living wage, paid holiday and protection from unlawful discrimination. But it doesn’t make them employees for tax purposes. Under tax law, they remain taxable as self-employed individuals.
In its recent publication, Secret Agents: agency workers in the new world of work, the Resolution Foundation summarised the key characteristics and rights of the three main types of employment status we have in the UK. A table showing UK employment status and rights can be found on page 11 of the report.
That the national press struggled to explain the employment and tax positions of these individuals when the Uber case was reported is hardly surprising. Whether the workers themselves and the hundreds of thousands like them are able to understand the income tax and NIC position seems doubtful.
For the record, I am not suggesting that these workers should be taxed as employees, nor that self-employment status is correct. Without looking at their contracts and the facts of their working practices, I am in no position to judge. And anyway, Uber has launched an appeal against the ruling, so even the employment law position is not yet final as at March 2017. But I am concerned that this arrangement just feels much too complicated, with too many possible outcomes when you consider employment and tax status separately.
How is work in the gig economy taxed?
The answer to this is quite easy once you know whether the worker is self-employed or employed (not always easy, of course). The problem lies with the English language, in that it uses words in a rather more casual way than we do for tax. In tax, there are no gigs, only self-employment or employment. There are rules to tell us which is which, and these must be applied to each contract (or gig) separately. It is not just a matter of the engager and/or worker choosing what they want it to be.
Unfortunately, tax and employment law work to different sets of rules. Although these rules are similar, they are not quite the same; and to complicate matters further, employment law has three different status descriptions, employment, self-employment and worker. Maybe it is in aligning these definitions that the solution might lie? Nothing else seems to have worked.
It is an inescapable truth that to the outside world, some of these platforms do look a lot like agencies. Agency workers find their working ‘gigs’ through employment agencies, around which much legislation now exists. These workers provide services in a workplace, but unlike employees, have no employment relationship with the workplace firm. Instead the worker is contracted by the agency, which in turn contracts with the client firm to provide the required staff. Notice the term ‘worker’ is applied to those doing the work here. The employment rights of workers are, of course, different from those of employees, but they are taxed like them.
Meanwhile, in contrast, the internet sharing platforms leave the choosing of which gig and which worker to the other two parties, so they are not agencies in the traditional sense, but they do still help out quite a lot in the middle to help the match happen and ensure that the outcome is a job performed satisfactorily.
The employment agency tax rules have themselves become considerably more complex and burdensome in the past few years and many workers are now taxed through payrolls operated by their employment agency or an associated umbrella company. New concepts of supervision, direction and control apply to make sure this happens.
Readers will detect quite correctly that I cannot suggest an easy solution to this puzzle, but it does seem there are several themes that need to be considered. The sharing platforms are disruptive but are bringing a new vitality to the workplace. That employment and tax law have yet to catch up simply means we need to focus on aligning some of our interpretations.
Matthew Taylor, chief executive of the Royal Society of Arts, has been asked by the British prime minister Theresa May to look at the non-tax aspects in his independent Review of employment practices in the modern economy – about which more information can be found on gov.uk. The Tax Faculty met Mr Taylor in December 2016 and suggested to him that he looks at tax and NIC alongside the other considerations.