In the dynamic landscape of the gig economy, additionally, we find ourselves at the crossroads of change. The term, a buzzword for many, holds particular relevance for those in the UK. Specifically, this week's episode of I Hate Numbers delves into the impending legislation by HMRC, set to take effect on January 1, 2024.

The Gig Economy's Scale

Before we explore the legislative intricacies of tax, let's comprehend the scale of the gig economy. Undoubtedly, a staggering 7.35 million people actively participate in this industry in the United Kingdom alone. Moreover, what does this mean in the grand scheme? Our friends at HMRC, in conjunction with the OECD, believe it necessitates new legislation.

New Legislation: A Compulsory Shift

Starting January 1, 2024, digital giants like Airbnb, Fiverr, Upwork, and Deliveroo will be compelled to report income details to HMRC. Consequently, this isn't a mere option; it's a mandatory action. The global stage is witnessing a synchronized effort to curb what tax authorities perceive as evasion and avoidance in the gig economy.

Impact and Enforcement

Moreover, as we transition into the heart of the matter, it's crucial to understand the implications. The legislation unfolds in two stages: reporting by digital platforms in 2024 and cross-checking by HMRC in 2025. The message is clear – transparency is non-negotiable. Those who fail to comply may find themselves the subject of a meticulous investigation.

Tax Evasion vs. Avoidance: Drawing the Line

Understanding the thin line between tax evasion and avoidance is paramount. For instance, while tax avoidance is legal and smart, evading taxes is a criminal offense. HMRC's focus is on ensuring individuals rightfully declare their income, thereby minimizing the tax gap and preventing loss of revenue.

Responsibilities of Gig Workers

Gig workers, take note. Equally, if you're self-employed and your yearly sales exceed £1,000, self-assessment registration is mandatory. Even if your income incurs no tax, it is crucial to declare. Thus, remember, hiding income can lead to repercussions beyond financial implications.

Potential Consequences and Preparation

HMRC possesses the authority to prosecute, emphasizing the severity of non-compliance. Meanwhile, preparation is key. Get your financial house in order. Explore our show notes for valuable resources and register for our free webinar on December 6, 2024, for a more comprehensive understanding.

Conclusion: Navigating the Tax Terrain

In conclusion, by addressing it head-on, anxiety can be mitigated, allowing gig workers to navigate this changing landscape successfully. Ready to master your financial game? Dive into our resources, stay informed, and elevate your financial literacy. Explore more on our website now.

The gig economy. It's a concept. It's a term. It's something that most of us have heard and many of us in the UK indulge in. This is where we earn income from being delivery drivers, working for Fiverr, Upwork, renting out spaces through Airbnb and the like. And the relevance of this on this week's I Hate Numbers podcast is because HMRC are getting involved.

And from the 1st of January 2024. There's going to be a new piece of legislation in place. And on this week's I Hate Numbers podcast, I'm going to be going through what that legislation is. I'm going to be looking at the difference between evasion and avoidance, the relevance of this new piece of legislation and what you need to do about it.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi, folks. Welcome to another weekly episode on I Hate Numbers. This is the podcast that’s got a simple mission. The mission is to help business owners make more money, reduce their stress and anxiety, reduce their tax liabilities and have the business lives they aspire to. Who wouldn't want that? Let's crack on with the podcast.

Now, as a spoiler alert, I'm going to be mentioning at the end of this podcast, a free webinar. Yeah, you heard it, a free webinar on taking the stress out of your tax returns. It's a free webinar that's being held on the 6th of December. There'll be a link to registration. And I'll talk more about that at the end of this podcast.

Now, the gig economy is a massive industry in the United Kingdom and also around the world. For this podcast, I'm going to be focused on the impact in the United Kingdom. There are over 7.35 million people who are engaged in and who work in that gig economy. So what does that matter in the grand scheme of things?

Well, our friends at HMRC, in conjunction with the OECD, have got some new legislation in store for us. Now from the 1st of January 2024, there are going to be new rules in place tackling what they see as tax evasion, brackets avoidance, more of that later on in this podcast, in the gig economy. Now essentially, the digital players like Airbnb, Fiverr, Upwork, Deliveroo, are going to have to report.

And spill the beans to the tax authorities about who's making money on their platforms. Now this is not a, if you wish to, it's a compulsory action. So those organisations, everyone who is registered with them, they will have to report those details to HMRC. Now, as I said, this is not just happening in the United Kingdom, it's happening pretty much on the global stage.

This conversation started many years ago, and HMRC and the British government are doing their part as far as the UK is concerned. Now, if we focus on what these rules mean, here's what's going to happen. So, from the 1st of January 2024, all those countries, their digital players will have to report who they have on their site and who's earning money.

And those details will be submitted to HMRC. That's stage one. Now, 12 months from that, 1st January 2025, as those tax returns come in, HMRC will be cross checking. They're investing more resources in this to see who's actually declared income from those activities on their tax returns. And you can guess what's going to happen next.

If for any reason those disclosures aren't made on the tax return, there's no indication of that being made, then HMRC will pounce and effectively an investigation will be instigated. HMRC will come after people who they feel are avoiding their tax obligations. Now what does that mean in actual practical terms?

Now two things, I think it's worthwhile reminding ourselves about the difference between evasion and avoidance. According to the ex Chancellor of the Exchequer, Dennis Healey, the difference between evasion and avoidance is the thickness of a prison wall. In essence, tax avoidance is perfectly legitimate, perfectly legal, and all of us do it in some form or another.

Tax avoidance is arranging your affairs such that you minimise and reduce your tax liabilities. So by, for example, claiming pension contributions, making gift aid contributions, claiming allowances that you're entitled to, businesses that might be investing in plant and equipment, all those are perfectly legitimate ways to reduce and minimise your tax liability.

And there's nothing illegal about those. It may be distasteful to some. But all people will practice it in some form or another now tax evasion - that's the thing that's very naughty, that's the thing that worst case will land you in prison. That's the thing that's a criminal offense by the way, and it is enshrined in legislation. And that means things like understating income brackets hiding it, overstating the expenses making claims where there's no legitimate basis to do so and deliberately and negligently not disclosing the full affairs for your tax. Now evasion is definitely naughty, not to be encouraged, and if you do get caught with tax evasion not disclosing income that you should be then as a minimum you'll be paying the taxes due and then you've got penalties and interest that will be levied on top. And if you're really really naughty HMRC will prosecute you with a view to putting you behind bars. So nothing's changed on the landscape here, but obviously HMRC and like many other countries around the world are concerned that people having side hustles or full time activities are not declaring what they should be declaring.

And therefore there's a big tax gap and a loss of revenue. And these conversations started back in July 2020, the legislation is now coming into force in the UK. Now, all is not lost. Just because you have income from a gig activity like Airbnb and Fiverr and Upwork doesn't actually mean you're paying any tax on that.

Now, as a reminder on the rules, if you are self employed and your total sales for a year are in excess of 1,000, you must register for self assessment, which is the regime in the United Kingdom. Your circumstances may be that what you're earning from Airbnb, Deliveroo, Fiverr, Upwork, etc. May be such that you have no tax to pay, but it doesn't mean you shouldn't be declaring it.

So declaring it is one thing, paying tax is a secondary issue. Now also bear in mind folks that if your income from this gig activity is less than 1,000 then there's nothing to declare. You don't even need to register with HMRC. If you do have to register and come into the tax net, again, what taxes you pay, what you can claim for those activities, you know, you can actually look at that closer. But bear in mind if you hide under the duvet, if you do not declare this income, then you could be in big problems.

Not only will HMRC look at your current year that you're filing for, but they have the power to look back retrospectively going back many years. So that's not a good thing to do. You might think this is fair. You may think it's a bit harsh. Well, if we're going to have a bit of, I suppose, equal balance objectivity here, many people in work under PAYE have no options.

They pay tax at source. Those people who generate income outside of that, where the tax is not deducted at source, that's the ones that HMRC are concerned with. And that's the ones they're focusing on and investing more resources and time and energy to pursue that. And as we said, tax avoidance is perfectly legal and smart.

It's what we do for hundreds of our clients. It's managing your affairs to reduce your tax liability, but hiding income, exaggerating expenses is a big no no. There's also a secondary thing to consider, folks, is that you may want to, for example, go for a mortgage, you may wish to show a level of income, and if you're hiding that income, that's going to be very problematic to do.

So let's round up. Be aware that if this happens, when this legislation does come in, and it's not a, if it will come in, it is going to come in, you need to make sure you get your house in order. If it sounds a bit overwhelming, you're a bit concerned, well check out our show notes for a link to the website. We've got plenty of resources. Also register for that free tax webinar on the 6th of December and find out a little bit more about the tax landscape. Now these things seem scary, but if you tackle it head on, you deal with it correctly,

if anything, you'll find that anxiety will be kicked into touch. So folks, I hope you found this helpful. As I said, check out the show notes for more information. If you're unsure about anything that's been talked about on this podcast, then you know what to do. Give me a shout. And until next time, keep gigging on, stay tax savvy, and I'll catch you on the next episode of I Hate Numbers.

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