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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 records £281,000 IR35 case win against ex-Sky presenter

Darts host, Dave Clark, has his appeal dismissed and is handed IR35 bill

Former Sky Sports presenter, Dave Clark, has lost his IR35 case appeal at the First Tier Tribunal - a result that leaves the well-known host of darts coverage with a tax bill of £281,000. 

The decision follows a tribunal hearing that took place in October 2020, in which Clark was contesting the original verdict that the contracts held from 2013 to 2018 between the presenter’s company, Little Piece of Paradise Ltd (LPPL) and Sky, belonged inside IR35. 


Where was this IR35 case won and lost? 

The tribunal notes indicate that Clark’s working relationship with Sky had many hallmarks of an inside IR35 contract, most of which centred on the three key IR35 status tests - Mutuality of Obligation (MOO), Control, and Personal Service. 


The existence of Mutuality of Obligation (MOO)

The fact that the fees paid by Sky were “neither reduced for no-show nor increased when Mr Clark had to work over time” suggested that the presenter would likely be paid whether he worked or not, in the way that an employee is. 

This strengthened HMRC’s view that Mutuality of Obligation existed between the two parties - as did the £150,000 annual fixed fee charged by Clark to Sky, which was split equally into 12 monthly payments.


Clark controlled by Sky

Despite Clark writing his own script and controlling his delivery of services provided, Judge Heidi Poon took the view that these contracts were ultimately controlled by Sky. Working under the direction of the production manager and being instructed to follow requests of the executive producer, such as who to interview, contributed to this decision.

This control extended to ‘when and where’, with Clark not having the option to choose when to work or where from. While many of the shows were presented live, often on location at a darts event, it was Sky that could choose whether or not to cover them, with Clark then told to present the coverage.

The fact that the broadcaster had ‘first call’ on Clark’s time was another deciding factor in this case. Sky held the ‘right of first call’, with the presenter expected to reserve 64 days in his diary to work should the broadcaster choose to exercise this right. 

While it was clearly difficult for Clark to work with full autonomy - a challenge many freelance presenters face due to editorial control restrictions - genuine contractors should not work under the control of their client and, where possible, retain the freedom to choose how they deliver their services, when, and where from. 


Personal service and substitution prove to be stumbling blocks

Presenters are sometimes synonymous with the programme they host, which can make it difficult for freelance broadcasters to prove the service they provide isn’t performed personally, and that a substitute can be supplied. 

However, in ‘LPPL v HMRC’, Clark argued that he was able to substitute in another presenter and did so on numerous occasions, with darts commentator Rod Studd standing in for him. But the sticking point was that instead of Clark arranging and paying Mr Studd for this, as would be the case in other business to business engagements, it was Sky that contracted directly with the substitute. 

This was explained in the tribunal notes: “For the presenting shifts which he agreed to work in place of Dave Clark a separate fee was negotiated between Sky and Rod Studd. Sky paid Rod Studd for these additional services.”

The key takeaway here is that for the right of substitution to constitute as genuine, contractors should be responsible for sourcing, managing, and paying the substitute, not the client. 


What can we learn from this case? 

As our CEO, Seb Maley, explained to the FT Adviser, it’s important that neither contractors, nor businesses engaging or placing these workers, read too much into HMRC’s victory:

“The fact of the matter is that Clark’s working relationship with Sky - like many other presenters - was quite different to ones held by typical contractors. It’s also possible that Clark may appeal the case again and overturn this decision.

“Ultimately, the judge’s view was that Clark was subject to control by Sky, who also paid him whether he worked or not. What’s more, he was restricted from presenting for other companies, which the judge believed painted a picture of employment rather than self-employment. But to reiterate, this certainly isn’t the case across the board.”

 
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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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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