Insights

Many people in the UK are finding our tax system to be overly complicated and the forthcoming election may be a turning point in correcting this. Today there are more self-employed people – gig economy workers, professionals with portfolio careers and people who are part time landlords with a rental property. Freelance workers now account for 5 million workers, a 2 million increase over the last two decades and tax compliance for freelancers can be challenging.

Research suggests that these people are finding navigating all the complexity increasingly difficult, because they are often required to maintain detailed records showing multiple revenue sources. As a result, they are finding compliance stressful and they are prone to compliance failures. In addition, HMRC has reported that the tax gap – the amount of money that should be paid to the Treasury compared with actual receipts – has widened.

Key recommendations to simplify tax policy

According to government policy makers at the Office of Tax Simplification, there are a number of ways that tax could be made simpler for people, using digital technology to keep them better informed and thereby reduce the tax gap. These were published in a recent report and include the following example recommendations:

• Allowing organisations that have data about earnings for self-employed workers and private landlords to share this directly with HM Revenue & Customs;
• Improving taxpayer online accounts to display information about different types of income in one place;
• Allowing taxpayers to view ongoing reports about their tax liabilities and make ongoing ad hoc payments towards their tax bill during a tax year period.

Office of Tax Simplification Tax Director, Bill Dodwell, has commented that “self-employed people including private landlords, find it hard to understand and comply with the tax system, so they end up having compliance failures and all the cost and worry that comes from that.”

In support of data sharing

One example given in the report of how data sharing could work is a self-employed freelancer sourcing work through an online platform like Fivrr and then through an employment agency intermediary. By providing access to an integrated individual tax account, with end-to-end tax reporting and payment services, it would be more straightforward for the taxpayer to keep track of income received. They could also update their tax account with additional income and expenses incurred as well as spread their payments throughout the year. An equivalent system could be provided to landlords who are working with property companies e.g. Airbnb or holiday rental agencies, to source and manage their tenants.

In our view, we would welcome any changes that simplify the tax compliance for freelancers regime, for instance, introducing a single account for all self-employed people rather than having two separate accounts. In the meantime, if you have any concerns about tax compliance or want to discuss the transition to becoming self-employed, contact partners@rjp.co.uk.