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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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Liz Truss promises to review IR35

The PM hopeful says she will “cut red tape” and unleash a “business revolution”

Liz Truss was the first of the two Prime Minister hopefuls to speak publicly about IR35 as the leadership race draws to a conclusion, committing to review the legislation if she becomes the leader of the Conservative Party next month. 

In an interview with The Sun on Sunday, the Foreign Secretary pledged to cut taxes for SMEs to unleash a “business revolution” and focused specifically on the issues relating to IR35. She was quoted as saying that IR35 reform is “all about trying to treat the self-employed the same as big business", before stating:

“But the fact is, if you’re self-employed, you don’t get the same benefits as being in a big company. You don’t get paid holidays, you didn’t get those benefits. So the tax system should reflect that more.”

These comments come just one month after the government responded to an employment status consultation launched in 2018, in which it was confirmed that Westminster had no plans to align tax and employment status.

Aligning the two would put a stop to what’s known as ‘zero rights employment’, which occurs when contractors operate inside IR35 – a result of paying employment tax but not receiving employment benefits in return. 

 

IR35 review pledge met with cautious optimism 

Launching a review into IR35 would make up one part of Ms Truss’s plan to “back business to deliver”, which she promised to make happen by “stop putting so much red tape, so much tax on business.”

Overall, Ms Truss’s comments have been met with cautious optimism by IR35 experts, many of whom, like Qdos, have continuously campaigned for change – whether with regard to HMRC’s fundamentally flawed IR35 status tool (CEST) or the abolition of zero rights employment. 

 

Review must be “independent and far-reaching”

However, it’s important to note that this wouldn’t be the first time IR35 will have been scrutinised. 

In fact, over the years there have been multiple consultations, inquiries and reviews – few of which have amounted to anything. For example, it was as recent as February of this year that the House of Lords published a damning assessment of the impact of IR35 reform in the private sector so far.

From telling HMRC to improve CEST to advising the government to address the issue of businesses blanket placing contractors inside IR35 without reasonable care, the Lords put forward a number of recommendations, none of which have materialised. 

This was a point our CEO, Seb Maley, made to Computer Weekly in reaction to Truss’s comments: “Liz Truss must make a review a priority if she becomes Prime Minister. But this mustn't be lip service or a tactic to win the votes of contractors for whom IR35 remains a massive issue. 

“Any review of IR35 needs to be independent and far-reaching.”

 

Sunak silent on IR35 but slams Truss for “dangerous” tax promises

Rishi Sunak, meanwhile, is yet to speak about IR35, which was reformed in the private sector in April 2021 – when he was the Chancellor of the Exchequer. 

His campaign team has, however, criticised Truss for pledging to make £50bn worth of unfunded tax cuts that could plunge the economy into an “inflation spiral”. 

Delivering on these promises while providing cost of living support would, according to Sunak, “mean increasing borrowing to historic and dangerous levels, putting the public finances in serious jeopardy.”

To summarise, then, while another review of IR35 should be seen as a step in the right direction, the jury remains out as to whether it would result in meaningful change. 

Specialists in the IR35 legislation since its introduction in 2000, Qdos provide a trusted and expert opinion on IR35 status, having saved contractors in excess of an estimated £35m in tax.

Find out more about Qdos.

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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