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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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a long road with hills

What can the self-employed expect from the new Prime Minister?

From an IR35 review to promises over the controversial Loan Charge, here’s what we know about Liz Truss on key issues impacting independent professionals…

Liz Truss has been appointed Prime Minister, almost two months after an under pressure Boris Johnson resigned from the post.

Eventually competing with Rishi Sunak – the former Chancellor of the Exchequer in Boris Johnson’s government – in the Conservative Party leadership campaign, Truss campaigned on the promise of a low-tax, low-intervention government.

Winning 57.4% of the available vote, Truss was declared leader of the Conservative Party on Monday 5th September, and in a short speech promised to “deliver a bold plan to cut taxes and grow the economy”

While the expected emergency Budget towards the end of this month should offer a clear indication of Truss’s tax policies and support of contractors and the self-employed, here is what we know so far…


IR35

In an interview with The Sun On Sunday in mid-August, Truss promised to review IR35, saying that the reform is “all about trying to treat the self-employed the same as big business”.

She continued “if you’re self-employed, you don’t get the same benefits as being in a big company… the tax system should reflect that”.

However, in a recent LinkedIn survey conducted by Qdos Contractor, we found that very few people have confidence in Truss’s promise to review this recently reformed legislation. 

In fact, the vast majority (94%) of nearly 500 individuals polled held the opinion that her pledge to review IR35 was an “empty promise”.


Income Tax

While Truss had been quiet on Income Tax throughout the leadership campaign, news reports have suggested that she is considering shifting the tax brackets around, which would see the basic rate threshold (20%) rise from £52,700 to £80,000.


National Insurance

Truss was opposed to the rise to National Insurance introduced in April 2022 by Rishi Sunak in his last Budget as Chancellor – and has criticised him throughout the leadership campaign for raising taxes.

So far, it sounds like Truss plans to reverse the increase, based on comments she herself made during an interview with the BBC’s Laura Kuennsberg on Sunday 4th September, reported here.


Corporation Tax

As in the case of National Insurance, during the leadership campaign Truss was at pains to point out two things.

Firstly, her competitor Rishi Sunak was responsible for introducing the planned rise to Corporation Tax, set to take effect in April next year; and secondly, that she had opposed that rise when it was announced.

Therefore, Corporation Tax could be one of the first taxes in Truss’s sights, in a bid to ease the tax burden on businesses and attract investment to the UK. 


Loan Charge

The Loan Charge was introduced as a mechanism to recover taxes owed to HMRC, which were often unknowingly avoided by contractors operating through disguised remuneration schemes.

Since its introduction, there have been nine suicides linked to the charge, and a parliamentary group has been established to lobby for change.

According to Contractor UK, Mrs Truss has pledged to look into both the loan charge and the suicides linked to it, calling it a “very, very tragic” situation. However, she gave no indication of how soon such an investigation might begin.


Spiralling energy costs

In addition to taxes impacting business owners, there’s also growing pressure on the government to provide help to those facing sharp increases in energy costs. 

As yet, Truss hasn’t confirmed her plan for protecting businesses against rising energy prices, but has suggested tax cuts –- particularly on green levies – which may help to reduce bills.

Small businesses are in a difficult position, however. They are not protected by the domestic energy price cap, which offers consumers some degree of protection from rising wholesale electricity prices. This leaves businesses exposed, but may not be solved by cutting green levies alone.

As such, the new Prime Minister will be expected to deliver a comprehensive package of support. 

The Chancellor (at the time of writing), Nadhim Zahawi, is considering cutting VAT and business rates, though any plans will likely become clearer in the coming weeks as Mrs Truss assembles her Cabinet.

Want to stay up to date with relevant industry news and insights? Our monthly newsletter includes a mixture of informative articles and video updates from trusted experts. Consider subscribing 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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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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