Government to make digital platforms responsible for reporting freelancers’ earnings

A breakdown of how incoming changes affect freelancers and gig economy workers

The rapid rise in digital platforms providing people with opportunities to buy and sell their products and services online has been watched closely by the government, that is set to introduce ways to make sure freelancers and gig economy workers utilising them are paying the right amount of tax.

This became clearer following the Spring Budget 2021, in which it was announced that a consultation would be held on ways the government can best implement the Organisation for Economic Co-operation and Development’s (OECD’s) Model Reporting Rules for Digital Platforms. 

These rules come into force in 2023 and will see digital platforms required to report information about the income of individuals making money from them. This move is designed to help HMRC better police the tax compliance of people charging for work on freelancing and gig economy platforms like Fiverr, Upwork, Deliveroo, Uber, Airbnb and many more. 

The consultation has now opened, with the government looking to gather feedback from impacted parties regarding ways these rules can be rolled out effectively. 

If you’re one of the many self-employed people who find work through these platforms, it may come as a surprise to hear that information regarding your income will be passed on to HMRC by these companies in the not too distant future. 

With this in mind, in this article we’ve explained what the introduction of OECD’s Model Reporting Rules for Digital Platforms will mean for you and outlined steps to take to ensure your compliance. 

What will digital platforms be required to do? 

From January 2023, digital platforms that facilitate the online selling of goods and services will have a responsibility to:

• Collect certain details about sellers, including information that identifies who the seller is, where they’re based and how much they’ve earned via the platform annually.
  
  
• Report this and the seller’s income to HMRC every year by 31st January.
  
  
• Pass this onto the seller themselves, which can be used to help them complete their tax returns.
  
  

While in this scenario the tax under consideration must be paid by the seller, not the platform, the government is set to introduce penalties for businesses that fail to comply with the above rules and report accurate information by the deadline.

How do these rules affect freelancers and gig workers?

While these changes directly impact digital platforms, the implications for freelancer and gig workers is also clear. 

HMRC will use the information obtained to make sure the sellers (freelancers and gig economy workers) are meeting their tax obligations. 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.

Are there any exemptions? 

There are, but only for occasional sellers. If you have completed less than 30 transactions or haven’t been paid more than €2,000 in one year from a single digital platform, it will not be required to report your earnings to HMRC. 

So is this a good or bad thing for freelancers? 

The introduction of the Reporting Rules for Digital Platforms shouldn’t necessarily be looked at as a negative thing. If you’re careful to make sure that you report all of your income and pay the correct amount of tax every year it shouldn’t have any impact on you. 

In fact, it can even help make submitting your Self-Assessment Tax Return slightly easier. This is because your earnings made from digital platforms will be shared with you. 

Accountants that support these workers should also take note, given the changes will have a bearing on how information regarding a client’s income can be gathered.

Do these changes mark part of a wider trend?

It could be viewed in that way. The government have paid close attention to the significant growth of digital platforms that enable self-employment, which is still a relatively new phenomenon. 

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

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.  

How can these risks be managed?

By making absolutely sure of your tax compliance, you won’t have any nasty surprises should HMRC investigate - and if tax isn’t one of your strengths, don’t hesitate to engage an accountant, who can take care of everything on your behalf. 

If HMRC does decide to scrutinise your financial affairs, it’s important that you have a comprehensive Tax Enquiry Insurance policy in place. Because while you can be confident that you don’t owe HMRC anything, you can never rule out the tax office approaching you at any given time. This protection covers the costs of expert advice, ongoing support and professional representation in court, should it come to that.