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Gig workers facing penalties for not declaring their tax

People who work in the ‘gig economy’ are being urged to check whether their tax obligations ahead of the 5 October self-assessment registration deadline. This in light of concerns that many do not think they should be paying tax.

The Low Incomes Tax Reform Group (LITRG) an initiative of the educational charity the Chartered Institute of Taxation (CIOT) is concerned that because of the irregular and ‘on demand’ nature of their activities, ‘gig economy’ workers may not realise that they are generating taxable income. They may also be unaware that even where the level of income means that there will be no tax or National Insurance due, a tax return may still be required. HMRC research has revealed that 54% of those who have earned income from the sharing economy (which includes those working in the ‘gig economy’) do not realise it is taxable.

In a new factsheet, ‘Tax if you work in the gig economy’, LITRG offers guidance tailored to those working in the ‘gig economy’ about their tax and employment law status, including on registering for self-assessment. It also covers:

  • What to do about one-off or very casual jobs;
  • Deductible expenses;
  • The new trading allowance;
  • Your tax credits/universal credit position;
  • National Insurance contributions (NICs).

Anne Fairp, chair of LITRG said: “HMRC’s finding, although worrying, is unsurprising. Given the irregular and often ‘on demand’ nature of ‘gig economy’ income, in many cases it does not even occur to many people that their income is taxable, let alone what their obligations are in respect of it.

“This is down to an overall lack of tax antennae and the fact that HMRC do not really provide those in the ‘gig economy’ with any tailored information that they can use and apply to their own situation. Indeed, the GOV.UK page on selling services online (https://www.gov.uk/income-from-selling-services-online) currently gives the impression that it is only necessary to file a tax return if one needs to pay income tax, i.e. if total income is more than the personal allowance and any other reliefs for which one is eligible. In fact, anyone who is self-employed with income above the £1,000 trading allowance needs to complete a tax return and is obliged to tell HMRC so that a self-assessment record can be set up. Anyone who relies on this GOV.UK page and neglects to complete a tax return risks being unintentionally non-compliant.

“While there has recently been a consultation looking at what more can be done to ensure tax compliance by users of online platforms, it is clear that people need help to inform, navigate and protect themselves right now and we hope that this factsheet will go some way to helping them.”

Newly self-employed people must notify HMRC by 5 October in the tax year following that in which their activity began or risk a penalty (unless their income from it is fully covered by the £1,000 trading allowance). For example, someone who begins trading in the tax year 2018/19 (which runs from 6 April 2018 to 5 April 2019), must tell HMRC by 5 October 2019. The easiest way to do this is to fill in the form CWF1: www.gov.uk/log-in-fileself-assessment-tax-return/register-if-youreself-e....

Those already in the self-assessment system, may still need to tell HMRC about their 'gig economy' income by completing form CWF1 and then including it on their tax return – but, again, but should visit the section on the trading allowance for an exception to this. Where the 5 October deadline is missed, a person should still register, asap. As long as a tax return is submitted and any money due is paid on time (normally by the following 31 January), there should be no potential lost revenue and no penalty to pay.

The LITRG factsheet can be found at https://www.litrg.org.uk/sites/default/files/Gig%20economy%20factsheet%2...

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