Technological advancements have meant we have more options when it comes to where and when we work and our attitudes towards our working lives has contributed to a growth in the ‘gig economy’. Gone are the days of a ‘job for life’ and the expectation that we will retire in the same job or even industry that we started in.
Those in the gig economy can hold down multiple self-employment roles on a regular, organised basis and with a view to earning a living. This shift in the way we work has been encouraged by the government in a bid to stimulate ‘micro entrepreneurship’ and has successfully encouraged people to start new ventures. One area which needs addressing however is that of taxation – how does the gig economy tax itself?
Who is part of the gig economy?
The list isn’t exhaustive and includes:
- Online sellers such as ebay and Etsy
- Homeowners renting out through Airbnb
- Casual work through sites such as Uber, Deliveroo, Task Rabbit
- Bloggers and digital influencers on platforms such as Instagram, Pinterest etc
- Digital nomads, freelancers and potentially non-UK resident workers
What many in the gig economy don’t realise is that their activities fall under the realms of self-employment and that by law, they are required to notify HMRC of their income sources.
Even one-off activities or very casual work can be taxable, with HMRC requiring a self-assessment tax return disclosing all relevant income and expenses.
What action should be taken?
If you have income as described above, you are likely to need to notify HMRC. This should be done within 6 months following the end of the tax year in which the income arose (i.e. by 5th October). If HMRC requests you complete a tax return, you should file it by 31 January (if done online) following the tax year end in which the income arose. You may need to pay taxes and National Insurance depending on your calculations. HMRC can impose penalties on those who fail to notify in time, who fail to submit a return by the deadline and has the power to impose tax-geared penalties for those who pay insufficient tax.
Tax reliefs available and ways to earn income tax-free
There are upsides to working in the gig economy and whilst workers have an obligation to manage their own tax affairs (employees have their tax deducted at source by employers under PAYE), here are some tax reliefs to consider:
- Rent a room relief – earn up to £7,500 tax-free by renting out a room in your home
- Sell your unwanted stuff on sites such as ebay; some gains might be offset by the capital gains tax exemption
- Rent out your driveway or garage storage – earn up to £1,000 tax-free
- Personal allowance – up to £11,850 of income can be earned tax-free in the current tax year; this can’t be carried forward so it’s a case of ‘use it or lose it’
- Dividends – business owners can take advantage of the dividend allowance currently available