Empowering the Freelance Economy

HMRC trawling “mind-boggling” amounts of financial data on freelancers and contractors

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Tax experts have confirmed with the Financial Times that the UK tax authority is securing a mind-boggling amount of financial data on people, including personal online transactions.

The experts said that the HMRC secures data from credit card transactions, travel records, passports and even the driving licence authority.

“The growing power of digital communications and computing, combined with new regulatory powers, enables HM Revenue & Customs (HMRC) to go further, deeper and faster in trawling for mind-boggling amounts of financial information. You may not know it, but HMRC could be crunching your data right now,” the Financial Times reported.

It, therefore, came as no surprise to The Freelance Informer that the HMRC would want to gain more data on the growing professional freelancer and gig economies.

New reporting rules for digital platforms

Whether you are a freelancer that has landed work of your own volition or attract work or income through a digital platform, such as Up Work, Fiverr, Etsy, Ebay, Deliveroo, Uber, Amazon or Airbnb, be prepared for new reporting rules.

HMRC has confirmed that the UK will be adopting the expanded version of the OECD reporting rules for digital platforms, meaning that websites and apps will have to report the incomes of sellers, including freelancers and contractors, potentially from January 2023.

The rules will mean that websites and applications based in the UK will have to report the income from the previous calendar year of “sellers” using their platform to HMRC and to the sellers on 31 January following the year-end, according to the ICAEW.

The Chancellor confirmed that the UK would be adopting the OECD rules in the 2021 Budget. At the time the rules only covered the provision of personal services (such as food delivery, freelance clerical work, housekeeping), accommodation and transport (such as taxis). But the HMRC’s net has widened.

As a digital platform freelancer, how do I comply?

Under the OECD rules, it will be the digital platform providers that will be responsible to report annually the income of individuals or companies selling goods or providing services via their platform to the tax authority where the platform is “resident, incorporated or managed”.

Platforms will:

  • Record and report sellers’ incomes
  • Collect and verify information that identifies the seller and their location, as well as the location of rental accommodation. This will enable HMRC to share the income data with the tax authorities where the seller is resident or where a property is located, said the ICAEW.
  • Required to provide a copy of the information to the seller each year, to help the seller declare the correct amounts for tax purposes. The rules state that the data is to be provided on 31 January each year.

Will certain freelancer platforms be excluded from the reporting rules?

The government can exclude platforms from the requirements and has proposed that those facilitating less than €1m of relevant services in the preceding 12 months are exempt.

HMRC claims that this will remove the administrative burden for new entrants into the digital marketplace.

Other platforms that can demonstrate that their business model does not allow sellers to profit from the payments they receive, or that they do not have any “reportable sellers” will also be exempt from the rules under the current proposals.

According to the HMRC, sellers are not deemed “reportable” if they provide more than 2,000 property rentals per year (generally large providers of hotel accommodation) or those who make fewer than 30 sales of goods a year totalling no more than €2,000 (“occasional sellers”).

What if there is a discrepancy in the digital platform reporting process?

If there is a discrepancy between what the platform and the seller have reported, the tax office could have grounds to investigate the individual. 

Needless to say, with the introduction of these rules on the horizon, anyone making money from digital platforms – whether classed as self-employed or ‘worker’ status – should prioritise their tax compliance, Qdos, the freelance and contractor insurer has urged.

The freelancer insurer said in a report in response to the new digital platform reporting rules that if freelancers are careful to make sure that they report all of their income and pay the correct amount of tax every year it shouldn’t have any impact on them.

However, any freelancers that use an accountant should let their accountant know that they will be generating income from the previous and current financial year through a digital platform of any kind. This will have a bearing on how information regarding their income can be gathered and verified.

More scrutiny over self-employed to come?

“By making businesses that engage these workers responsible for reporting their income, HMRC has made it clear they do not entirely trust the individuals to do this themselves,” said the Qdos report. 

“The incoming changes also suggest that the tax authority will be paying close attention to this sector of the self-employed labour market going forward,” said the insurer.  

Duration

The consultation on the reporting procedures of digital platforms will run from 30 July 2021 to 22 October 2021

Lead official

D Wigley, HM Revenue and Customs (HMRC)

How to respond or enquire about this consultation

Responses and requests for meetings can be sent to eoi.policy@hmrc.gov.uk

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