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Model Reporting Rules for Digital Platforms

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A BASIC GUIDE FOR FREELANCERS AND PLATFORM OPERATORS

 

OECD Model Reporting Rules

From January 2023, 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 2023 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

What is the OECD?

 

The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental organisation which establishes international standards and information-sharing for its 38 member countries, including the UK, US, Australia, and much of Europe. It has a particular focus on economic policy and tax evasion.

 

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.

 

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Government to make digital platforms responsible for reporting freelancers’ earnings

A breakdown of how incoming changes affect freelancers and gig economy workers 

The rapid rise in digital platforms providing people with opportunities to buy and sell their products and services online has been watched closely by the government, that is set to introduce ways to make sure freelancers and gig economy workers utilising them are paying the right amount of tax.

This became clearer following the Spring Budget 2021, in which it was announced that a consultation would be held on ways the government can best implement the Organisation for Economic Co-operation and Development’s (OECD’s) Model Reporting Rules for Digital Platforms

These rules come into force in 2023 and will see digital platforms required to report information about the income of individuals making money from them. This move is designed to help HMRC better police the tax compliance of people charging for work on freelancing and gig economy platforms like Fiverr, Upwork, Deliveroo, Uber, Airbnb and many more. 

The consultation has now opened, with the government looking to gather feedback from impacted parties regarding ways these rules can be rolled out effectively. 

If you’re one of the many self-employed people who find work through these platforms, it may come as a surprise to hear that information regarding your income will be passed on to HMRC by these companies in the not too distant future. 

With this in mind, in this article we’ve explained what the introduction of OECD’s Model Reporting Rules for Digital Platforms will mean for you and outlined steps to take to ensure your compliance. 


What will digital platforms be required to do? 

From January 2023, digital platforms that facilitate the online selling of goods and services will have a responsibility to:

  • Collect certain details about sellers, including information that identifies who the seller is, where they’re based and how much they’ve earned via the platform annually.

  • Report this and the seller’s income to HMRC every year by 31st January.

  • Pass this onto the seller themselves, which can be used to help them complete their tax returns.

While in this scenario the tax under consideration must be paid by the seller, not the platform, the government is set to introduce penalties for businesses that fail to comply with the above rules and report accurate information by the deadline.


How do these rules affect freelancers and gig workers?

While these changes directly impact digital platforms, the implications for freelancer and gig workers is also clear. 

HMRC will use the information obtained to make sure the sellers (freelancers and gig economy workers) are meeting their tax obligations. If there is a discrepancy between what the platform and the seller have reported, the tax office could have grounds to investigate the individual. 

Needless to say, with the introduction of these rules on the horizon, anyone making money from digital platforms - whether classed as self-employed or ‘worker’ status - should prioritise their tax compliance.


Are there any exemptions? 

There are, but only for occasional sellers. If you have completed less than 30 transactions or haven’t been paid more than €2,000 in one year from a single digital platform, it will not be required to report your earnings to HMRC. 


So is this a good or bad thing for freelancers? 

The introduction of the Reporting Rules for Digital Platforms shouldn’t necessarily be looked at as a negative thing. If you’re careful to make sure that you report all of your income and pay the correct amount of tax every year it shouldn’t have any impact on you. 

In fact, it can even help make submitting your Self-Assessment Tax Return slightly easier. This is because your earnings made from digital platforms will be shared with you. 

Accountants that support these workers should also take note, given the changes will have a bearing on how information regarding a client’s income can be gathered.


Do these changes mark part of a wider trend?

It could be viewed in that way. The government have paid close attention to the significant growth of digital platforms that enable self-employment, which is still a relatively new phenomenon. 

By making businesses that engage these workers responsible for reporting their income, HMRC have made it clear they do not entirely trust the individuals to do this themselves. 

The incoming changes also suggest that the tax authority will be paying close attention to this sector of the self-employed labour market going forward.  


How can these risks be managed?

By making absolutely sure of your tax compliance, you won’t have any nasty surprises should HMRC investigate - and if tax isn’t one of your strengths, don’t hesitate to engage an accountant, who can take care of everything on your behalf. 

If HMRC does decide to scrutinise your financial affairs, it’s important that you have a comprehensive Tax Enquiry Insurance policy in place. Because while you can be confident that you don’t owe HMRC anything, you can never rule out the tax office approaching you at any given time. This protection covers the costs of expert advice, ongoing support and professional representation in court, should it come to that. For more information, please click here.

By:Benedict Smith
 
 

 

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:

  1. Maintain adequate records of earnings and expenses
  2. Distinguish between earnings obtained through digital platforms and via other means

  3. Protect against a HMRC enquiry with Tax Enquiry Insurance

  4. Ensure the correct tax is paid on time to HMRC via self-assessment

 

What is Tax Enquiry Insurance?

Tax Enquiry Insurance provides individuals with expert defence should HMRC launch any range of enquiries. With this policy, an experienced Qdos tax consultant will handle all correspondence from HMRC throughout the duration of the enquiry. This offers policyholders reassurance that a trusted specialist with a proven track record is representing them. 

Irrespective of whether a person is operating with tax compliance, HMRC can open a tax enquiry at any given time, which can be time-consuming, stressful and potentially very costly if  not handled correctly. Qdos’ Tax Enquiry Insurance protection covers the cost of defence and support needed to manage the enquiry appropriately.

 

 

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 2023, digital platform operators which connect sellers of relevant services to users, should:

  1. Identify all relevant and excluded sellers, ensuring a mechanism for ongoing checks for new sellers using the platform.
  2. Collect and verify information from relevant sellers including:
    1. Name
    2. Address
    3. Unique Taxpayer Reference (UTR) or National Insurance number*
    4. Date of birth or company registration number if applicable
  3. Determine the jurisdiction of residence for each relevant seller (based on the home or registered office address provided).
  4. Maintain adequate records of above information and checks made.

From January 2023, operators will need to:

  1. Complete the above for any new relevant sellers and maintain a record of changes (e.g. change of address/jurisdiction).
  2. 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.

 
 

 

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