Model reporting rules for digital platforms

OECD model reporting rules

From January 2024, digital platforms that enable individuals to earn money by selling services through them will become responsible for reporting sellers’ income to HMRC. This is in addition to the self-employed individuals themselves continuing to submit this information to the tax office on their self-assessment tax return.

If there are any discrepancies between information provided by a digital platform and the individual, HMRC could have grounds to launch a tax enquiry. 

The government will introduce these changes in a move to ensure gig economy workers are paying the correct amount of tax. As a result, and because HMRC will soon have a record of a freelancer’s or gig economy worker’s earnings, those working through digital platforms must make sure they report the correct income via their personal tax return annually and maintain an appropriate record of expenses.

The implementation of the rules is currently under consultation until 22nd October 2021, with the government considering whether to include the sale of goods within the scope of these changes.

What are the model reporting rules for digital platforms?

The Model Reporting Rules for Digital Platforms is an international framework introduced by the OECD for reporting on individuals selling their services via digital marketplace platforms and sharing such information with the relevant tax authority, in order to ensure the tax compliance of freelancers and gig economy workers.


Under these rules, by January 2024 online businesses that facilitate the selling of rental property and/or personal services (with a possible extension to the sale of goods) must:

• Collect details about individuals earning over €2,000 per year (or those who have made 30+ transactions) from the platform and verify the seller’s information
  
  
• Report the seller’s earnings to HMRC annually by 31st January
  
  
• Share this information with the ‘seller’ (the worker)
  
  
  

The information will be used by HMRC to:

• Obtain income information from overseas platforms for UK-resident sellers
  
  
• To detect and tackle tax non-compliance of gig economy and freelance workers
  
  
• Share income information with the appropriate international tax authority where the seller is a resident abroad

Who do the reporting rules apply to?

If you are providing any of the following relevant services via a digital marketplace or online platform, software, or app, the reporting rules will apply and your income will be shared directly to HMRC (or relevant tax authority) by the platform under the new rules:

• Rental of immovable property, such as holiday accommodation and parking spaces (excludes hotels).
  
  
• Personal services, such as food delivery, private transport hire, freelance work such as bookkeeping and graphic design, offline services such as gardening, cleaning, dance instruction and seasonal work such as events or restaurant/bar work.
  
  

If you are a digital platform operator which connects sellers providing any of the above services to buyers, you may need to report to HMRC or the relevant tax authority information regarding these sellers. These incoming changes apply to a wide range of online businesses, softwares and apps, as the policy document outlines:

“A “Platform” means any software, including a website or a part thereof and applications, including mobile applications, accessible by users and allowing Sellers to be connected to other users for the provision of Relevant Services or the sale of Goods , directly or indirectly, to such users.”

This could therefore include the likes of Uber, Deliveroo, Airbnb, Upwork, Fiverr, Freelancer.com, TaskRabbit, Bark, and many more platforms on which individuals are able to earn a self-employed income, whether full or part-time.

The rules do not encompass businesses such as recruitment agencies, directories, payment services such as PayPal or hotel booking sites. Contractors engaged by these platforms to provide services for the platforms themselves will also not be included within these rules.

What do the rules mean for freelancers and gig economy workers?

The government want to make sure that the rise in the digital economy does not result in a tax loss to the Treasury. It is clearly stated in the consultation that the information will be used “to ensure that sellers are complying with their tax obligations and to tackle non-compliance if they are not”.

This increases the risk of a tax enquiry for freelancers and gig economy workers, particularly if information provided by a digital platform differs from that submitted by the individual.

How can individuals manage these changes?

Because digital platforms will begin sharing the income of ‘sellers’ to HMRC, it’s crucial that the individual also ensures the correct amount is reported via their self-assessment tax return.

It is important to note that the platform is required to provide you with the same information that will be reported to the tax office.

Additionally, given the risk of a tax enquiry is increased, freelancers and gig economy workers are encouraged to protect themselves with Tax Enquiry Insurance to mitigate these risks.

Freelancers and gig economy workers using digital platforms should:

• Maintain adequate records of earnings and expenses
  
  

• Distinguish between earnings obtained through digital platforms and via other means
  
  
• Protect against a HMRC enquiry with Tax Enquiry Insurance
  
  
• Ensure the correct tax is paid on time to HMRC via self-assessment

What do the rules mean for digital platforms?

Digital platform operators may face penalties for not complying with the reporting rules as required. This penalty regime is yet to be defined, however, will likely be based upon the due diligence taken to comply with the rules, and the timeliness and accuracy of reporting.

What do you need to do as a digital platform operator?

By January 2024, digital platform operators which connect sellers of relevant services to users, should:

• Identify all relevant and excluded sellers, ensuring a mechanism for ongoing checks for new sellers using the platform.
  
  
• Collect and verify information from relevant sellers including: 
  Name
  Address
  Unique Taxpayer Reference (UTR) or National Insurance number*
  Date of birth or company registration number if applicable

• Determine the jurisdiction of residence for each relevant seller (based on the home or registered office address provided).
  
  
• Maintain adequate records of above information and checks made.

From January 2025, operators will need to:

• Complete the above for any new relevant sellers and maintain a record of changes (e.g. change of address/jurisdiction).
  
  
• Report relevant sellers’ information including earnings, payment account information, any deducted charges/fees, and further information if the service is for the rental of properties to HMRC by 31st January each year. HMRC will likely provide an online service for submitting this information.

*HMRC are consulting on the most relevant taxpayer identification number (TIN) to use for the reporting rules and so is subject to change.