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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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HMRC slip up means taxman is denied opportunity to appeal IR35 tribunal

Late application sees tax office lose chance to appeal IR35 tribunal, which also has a second case verdict delayed

It has been revealed that HMRC missed the opportunity to overturn an IR35 case defeat at the Upper Tier Tribunal after missing the deadline to submit an application to do so. This means any chance the tax office had of winning this long-running IR35 case are now all but over. 

In the same Tribunal, which focused on two separate contracts held by one contractor, the judges delayed delivering a verdict on the second contract until a decision has been reached in another tax case, such is its importance. 

The contracts in this UTT involve locum urologist George Mantides. He provided his services through George Mantides Ltd as a specialist urologist to Royal Berkshire Hospital (RBH) from March to August in 2013, and to Medway Maritime Hospital (MMH) from September to October 2013.

In 2019 at the First Tier Tribunal, (FTT) a split verdict was delivered. Mr Mantides’ contract with RBH was deemed caught by IR35, with the MMH engagement viewed as outside IR35.

At the recent UTT, heard on 15th July 2021, Mr Mantides was looking to overturn the RBH decision, while HMRC would have challenged the MMH verdict, should it have lodged its permission to appeal in time. 


Calamitous HMRC file application late for MMH defeat

Let’s start with HMRC’s failure to meet the deadline to appeal the MMH contract. 

Despite losing this case at the FTT on the grounds that Mr Mantides’ contract included the right of substitution (which had been exercised) and that just one day of notice had to be given to terminate the engagement, HMRC sought permission to appeal this at the UTT.

However, and crucially, the application was submitted late and no extension time was granted to the tax authority. In short, this means HMRC has lost its chance to overturn the outside IR35 verdict, which has been upheld. 

Unsurprisingly, expert reaction to this blunder from HMRC has not been forgiving, with our own CEO, Seb Maley, describing it to Contractor UK as a “calamity”, that “will not have done their reputation any favours.”


RBH decision delayed until PGMOL verdict lands

The second engagement, concerning the RBH contract, turned out to be a more complex matter. 

The UTT did rule in favour of Mr Mantides on grounds 1 (the one week termination period) and 2 (an obligation to deliver 10 half day sessions per week) of his appeal, however it was agreed by both parties and the judges that ground 3 (which focused on Mutuality of Obligation) cannot be considered full until the recently heard PGMOL v HMRC verdict is published. 

But why is this? It’s clear that Mutuality of Obligation (MOO) is key to the outcome of this contract. By this we mean the obligation (or lack of) that Mr Mantides had to work for RBH and the obligation that RBH had to provide him with paid work

In the £584,874 PGMOL case, HMRC unsuccessfully argued at an UTT that professional football referees were employees of the refereeing body. It was recently escalated and heard at the Court of Appeal.

Like Mr Mantides, the outcome of this decision, which is expected soon, rests largely on MOO. In the UTT hearing for the PGMOL case, HMRC failed to convince the judges that MOO exists in all working relationships. 

Given the deemed importance of the PGMOL verdict, it accepted that this verdict would have a “significant bearing” on both Mr Mantides’ and HMRC’s argument, which is why a decision has not yet been made.


PGMOL decision could be defining moment for MOO (and CEST)

The PGMOL outcome could also have major implications for the future of HMRC’s IR35 tool, CEST. 

If it’s decided that the tax office’s interpretation of MOO is not correct and that this aspect of IR35 case law doesn’t automatically exist in all engagements, status decisions based on answers provided by CEST - which works on the premise that MOO is present - will be cast in doubt. 

Given this tool has been used over 1m times in the past year alone, needless to say the consequences of HMRC failing to overturn this loss at the Court of Appeal could be huge.

While no date has been given for the PGMOL verdict, which could determine the outcome of Mr Mantides’ IR35 case, a decision is expected in the coming months. 

As always, Qdos will keep you updated.

 

Sign up to our monthly newsletter to keep up to date with relevant industry news and updates. Qdos are a leading provider of award-winning services, including IR35 insurance. For more information, please call 0116 262 0999 or email [email protected].

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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The Company

 

About Us

Why Qdos?

 

Qdos Contractor are one of the leading providers of specialist contractor insurance services in the UK. Our online application process takes only a matter of minutes with all documentation issued instantly. Unlike many other brokers, we don’t hide our premiums until you've provided your details, as we are confident that our premiums, service and product are the best in the market. In addition, Qdos Contractor is one of the leading authorities on the IR35 legislation and have handled well over 1,500 IR35 enquiries on behalf of UK contractors.

 

Our History

 

Qdos began in 1988 as a tax consultancy business and has grown significantly over the past two decades, providing expert business services, products and advice. Over the years, Qdos has grown in both size and reputation as a trusted contractor insurance broker as well as an expert tax advisor. Our aim is to provide UK contractors with the assistance and service with IR35 issues they need as well as sustaining excellent quality and competitive premiums in the contractor insurance market.

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