Get PAYE right for the employed before extending it to the self-employed?
The OTS has published a paper suggesting that some form of PAYE mechanism might be applied to self-employed workers using online platforms to source work. How realistic a possibility is this, given that we have heard only recently that HMRC has halted progress on its ‘dynamic coding’ project to get PAYE right for employees?
Following the Taylor review of employment practices, discussion has continued as to how best to tackle the taxation of various categories of ‘worker’ in what has become known as the ‘gig economy’.
While it would be helpful to determine once and for all the true employment status of those working in this environment, alignment of the tax rules with employment law does not seem to be a nettle that anyone is prepared to grasp. In the absence of addressing those issues, the debate appears to have moved on to how tax can best be collected from those working in the murky middle ground.
The latest contribution to this debate is the Office of Tax Simplification’s paperPlatforms, the platform economy and tax simplification. This aims to kick start discussion as to how self-employed platform workers can avoid getting themselves into tax problems – perhaps through failing to report income at all, or because they have not made provision for a later tax bill and get into debt as a result.
After emphasising HMRC’s responsibility to help inform people of their obligations, the paper goes on to propose some modified form of PAYE to be applied to trading income deriving from platform work.
Practical implications
The obvious reaction to such a proposal is perhaps that it sounds good in theory but how can it work in practice?
We are already aware that HMRC has halted progress on its ‘dynamic coding’ programme which was aiming to improve the PAYE process for employees. Those in multiple employments or who frequently change jobs can still find they have not paid the right tax by the end of the year, even under the modernised PAYE system we have now following changes over the last few years.
This problem is likely only to be amplified for those working on a ‘gig’ basis. Would such a system even attempt to keep up with the worker’s earnings accurately, or would it operate on a flat-rate scheme? If so, how would that rate be determined? Would the taxpayer be overpaying and have to wait for a year end adjustment once their final income is known and all relevant expenses claimed? Equally, might they still underpay and face an unexpected tax debt at the end of the year?
The risk with PAYE is that most taxpayers rely on it unequivocally and assume that their tax is dealt with up front. Where a year end reconciliation proves they have not paid enough, this can come as an unwelcome surprise.
There would be a risk that in seeking to apply some form of PAYE to platform workers the same problem would occur. Rather than advising taxpayers of their obligation to report income and pay tax, workers may well think it is being dealt with for them so they do not have to worry.
Ultimately, the debate falls back on the question as to what the state expects of the taxpayer in terms of dealing with their own affairs as against tax operating in the background. It initially seems that PAYE for platform workers might not simplify the system – at least, not without tackling a lot of complicated questions first.
Home >Articles > Get PAYE right for the employed before extending it to the self-employed?
Get PAYE right for the employed before extending it to the self-employed?
The OTS has published a paper suggesting that some form of PAYE mechanism might be applied to self-employed workers using online platforms to source work. How realistic a possibility is this, given that we have heard only recently that HMRC has halted progress on its ‘dynamic coding’ project to get PAYE right for employees?
Following the Taylor review of employment practices, discussion has continued as to how best to tackle the taxation of various categories of ‘worker’ in what has become known as the ‘gig economy’.
While it would be helpful to determine once and for all the true employment status of those working in this environment, alignment of the tax rules with employment law does not seem to be a nettle that anyone is prepared to grasp. In the absence of addressing those issues, the debate appears to have moved on to how tax can best be collected from those working in the murky middle ground.
The latest contribution to this debate is the Office of Tax Simplification’s paperPlatforms, the platform economy and tax simplification. This aims to kick start discussion as to how self-employed platform workers can avoid getting themselves into tax problems – perhaps through failing to report income at all, or because they have not made provision for a later tax bill and get into debt as a result.
After emphasising HMRC’s responsibility to help inform people of their obligations, the paper goes on to propose some modified form of PAYE to be applied to trading income deriving from platform work.
Practical implications
The obvious reaction to such a proposal is perhaps that it sounds good in theory but how can it work in practice?
We are already aware that HMRC has halted progress on its ‘dynamic coding’ programme which was aiming to improve the PAYE process for employees. Those in multiple employments or who frequently change jobs can still find they have not paid the right tax by the end of the year, even under the modernised PAYE system we have now following changes over the last few years.
This problem is likely only to be amplified for those working on a ‘gig’ basis. Would such a system even attempt to keep up with the worker’s earnings accurately, or would it operate on a flat-rate scheme? If so, how would that rate be determined? Would the taxpayer be overpaying and have to wait for a year end adjustment once their final income is known and all relevant expenses claimed? Equally, might they still underpay and face an unexpected tax debt at the end of the year?
The risk with PAYE is that most taxpayers rely on it unequivocally and assume that their tax is dealt with up front. Where a year end reconciliation proves they have not paid enough, this can come as an unwelcome surprise.
There would be a risk that in seeking to apply some form of PAYE to platform workers the same problem would occur. Rather than advising taxpayers of their obligation to report income and pay tax, workers may well think it is being dealt with for them so they do not have to worry.
Ultimately, the debate falls back on the question as to what the state expects of the taxpayer in terms of dealing with their own affairs as against tax operating in the background. It initially seems that PAYE for platform workers might not simplify the system – at least, not without tackling a lot of complicated questions first.
