The gig economy’s record growth may also require the UK government to re-evaluate National Insurance contributions and tax revenue.
A major 2023 study found that the average person could earn almost £10,000 a year using a side hustle and that more than one in three or 20 million people now have multiple incomes.
By 2025, it is estimated that nearly one in two, or 47% of the UK’s adult population could be earning extra income. That figure compares to less than 10% in 2017.
The most common reason for someone to enter the gig economy was cost of living (35%) followed by the rising impact of household bills (34%).
Vigilance by tax agents required
New reporting rules for digital platforms, that came into force from January 2024, require gig workers who use digital platforms to generate a profit of £1,000 to declare their income.
Craig Hughes, Head of Tax at Brown Butler Accountants, told attendees IFA’s quarterly tax series that: “The HMRC is taking a tougher stance on side hustle transactions.
“They’re asking the owners of platforms to report sellers’ information for tax purposes and there are new rules requiring them to make an annual report of earnings.”
HMRC has invested in sophisticated computer software and 24 full-time staff in the crackdown. In fact it will spend £39.6 million to catch workers who make an income of more than £1,000 from online platforms but don’t declare it.
It’s worth noting that the new regulations will net income made not only from UK platforms but global platforms, as part of a tax sharing agreement with the Organisation for Economic Co-operation and Development.
Tax exemptions and loopholes
Tax payers disposing of household items at less than the price they paid for them are not expected to be affected by the reforms, according to the Low Incomes Tax Reform Group (LITRG).
Hughes says: “What this isn’t designed to capture are people selling one off items.”
Gig workers who make a total untaxed income of less than £1,000 and fewer than 30 sales in a year also won’t need to report their earnings.
However, if activity is regular and carried out with a view to generate a profit, the vendor will be classified as self-employed. As is the case with those who are self-employed, they will be required to pay both tax and Class 2 and Class 4 National Insurance contributions. For those who generate income by renting furnished accommodation in their own home, Rent a Room relief still provides a tax loophole where earnings are below £7,500.
Sharper focus on SMEs in a fast-changing marketplace
Accountants may find that their focus is drawn not only to clients who earn income from the gig economy but to SMEs who use these workers.
A 2024 report by the Low Pay Commission found that pay for gig workers varies unpredictably and can be hard to understand, and that disputes over working hours can arise, while a first of its kind study by the University of Bristol in 2022 found 52% of gig workers earned below minimum wage or, on average, only £8.97 per hour.
However, keen debate around gig workers’ rights continues with issues such as fairer pay and working hours, as well as access to benefits such as holiday or sick pay, likely to be contested.
The Uber case, for example, ruled that the company’s gig workers should be treated not as contractors but as workers who were dependent on the platform.
For SMEs who use gig workers, ensuring adequate compensation as well as rights for all employees is not only ethical business practice but may prevent costly future legal claims. Accountants and tax agents play a crucial role in ensuring compliance and advising clients on best practices.
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