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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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Inquiry into IR35 reform in the private sector is launched

The Lords Sub-Committee is reviewing IR35 for the second time 

In response to the introduction of private sector IR35 reform on 6th April 2021, the House of Lords Bill Sub-Committee has opened an inquiry into the performance of these contentious changes so far - this follows the news of another separate review into public sector reform, enforced in 2017, which will be conducted by the National Audit Office in Winter 2022. 

The Lords IR35 inquiry has been described as a ‘follow-up’ to the Sub-Committee's report published in April 2020, titled ‘Off-payroll working: treating people fairly’. This reviewed and ultimately criticised the government’s decision to enforce IR35 reform which has since seen medium and large businesses become responsible for determining the IR35 status of contractors. 


IR35 is “riddled with problems…”

At the time, the IR35 legislation was deemed to be “riddled with problems, unfairnesses and unintended consequences” by Lord Forsyth who was then the chair of the House of Lords Economic Affairs Finance Bill Sub-Committee. The committee also called for “wholesale reform of IR35.”

Following the launch of this follow-up IR35 inquiry, new chair of the sub-committee, Lord Bridges, said the investigation is being carried out to learn “about the experiences of engagers and contractors to date.”

He also requested to “hear particularly from representative bodies about the experiences of individual contractors.”


Inquiry to examine key areas 

Like the initial inquiry, the follow-up looks to be fairly comprehensive. It calls for responses from impacted parties with regards to the overall success of the reform, the effectiveness of HMRC’s Check Employment Status for Tax (CEST) tool along with the how well the tax authority has supported contractors and businesses throughout. 

It also asks if IR35 reform has contributed to existing job vacancies in the UK. This could be  seen as a nod towards the HGV drivers crisis, which has been brought on by IR35 reform, along with the pandemic and Brexit. 


Tax avoidance schemes to face further scrutiny 

In addition to this, the inquiry asks how successful recently-published proposals to combat the proliferation of tax avoidance schemes are likely to be. As part of the draft Finance Bill released on 27th October, the government outlined several measures to clamp down on promoters of tax avoidance, which operate under the guise of umbrella companies. 

These included; the power for HMRC to seek freezing orders to stop tax avoidance schemes from dissipating or hiding their assets, rules allowing HMRC to heavily penalise UK entities that facilitate tax avoidance and naming promoters of these schemes to warn potential victims. 


Will findings lead to meaningful change?

With another IR35 inquiry underway, the question has been asked whether its findings will reverse recently enforced reform or lead to the major changes that have been called for previously by the House of Lords Bill Sub-Committee. 

Our CEO, Seb Maley, shared his view on this:

“The first Lords review was damning and exposed many of the mistakes the government has made with regards to IR35 reform in the public sector back in 2017 - from highlighting CEST’s fundamental failings to addressing the issue of zero rights employment. But ultimately, it was largely ignored by policymakers, who pushed on and introduced similar changes in the private sector earlier this year. 

“I’ve no doubt that the Lords will conduct another thorough, fair and brutally honest assessment of reform, but it remains to be seen if it will result in the changes that many contractors want, which is the reversal of reform in the private sector.”

This IR35 inquiry is open for submissions until 15th November 2021, with the Lords Finance Bill Sub-Committee inviting stakeholders to share their view. As a leading authority on IR35, Qdos will be contributing.

If you want to keep up to date with industry news and insights, click the button below to sign up to our monthly newsletter 

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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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