What is the gig economy?
Technology is driving a change in working practices, with more and more individuals working flexibly as part of the gig economy.
In the gig economy, instead of a single role with a single employer, individuals undertake a number of short term, temporary roles or gigs.
Why is this under the spotlight now?
- Tax and employment law is struggling to keep up to date with the growth of the gig economy.
- Most businesses have, to date, not treated workers in the gig economy as employees. This has led to an increase in self-employment: currently around 5 million people (15% of workers) are self-employed.
- Treating individuals as self-employed can result in tax savings for businesses, as employers’ NICs and the Apprenticeship Levy are not payable.
- However, it also means that individuals often lack basic employment rights, such as entitlement to the National Living Wage, holiday or statutory pay and protection against unfair dismissal. This position has recently been challenged by individuals in the employment law cases of Pimlico Plumbers and Uber.
What is happening?
The employment law and tax implications of the gig economy are currently under review by the Government.
The House of Commons Work and Pensions Committee recently published a report Self-employment and the gig economy which recommends that the Government should:
- Close loopholes that currently allow ‘bogus’ self-employment practices.
- Develop a roadmap to equalise NIC contributions by employees and the self-employed
- For employment law purposes (as distinct from tax purposes), introduce an assumption of the employment status of ‘worker’ by default, rather than ‘self-employed’.
At the request of the Government, Matthew Taylor of The Royal Society of Arts (the RSA) has also undertaken a review into modern working practices, including the non-tax implications of the gig economy (the Taylor Review). His final report (published on 11 July 2017) contains a number of recommendations, including that the Government should:
- Develop new employment law, including a clearer outline of the tests for employment status.
- Introduce of a new category of workers - dependent contractors – who are eligible for workers’ rights but who are not employees.
- Examine ways in which the tax system might address the disparity between the level of tax applied to employed and self-employed labour.
The Office of Tax Simplification (OTS) is specifically addressing the tax issues arising from the gig economy. As well as income tax and PAYE treatment, they are concerned with how workers interact with the tax system, and the VAT treatment of supplies made in the gig economy.
It is not yet clear what the Government’s response to these will be. It does however seem likely that changes will be made to employment law initially, with tax reform following on from this.