The gig and sharing economies, powered by online marketplaces, have freed millions of individuals to offer their labour and underutilised assets to businesses and consumers across the world. Mastercard has estimated that the two economies will double in value from US$204 billion in 2018 to US$452 billion by 2025.
But the success of these economies is threatening to undermine governments’ tax receipts due to structural issues in the tax code. Individuals working through the platforms are today largely regarded as self-employed, contracting with the consumer, whilst the marketplaces take on an agency role. This means there is no employer to collect income tax (and other employer/employee taxes), or to charge VAT on the services. Instead, it is down to the individual to self-declare both. For VAT, where the UK has the highest threshold when considered in relation to other comparable countries, this means that most income from the gig and sharing economies goes VAT-free. The tax losses aside, this creates a competitive handicap for traditional businesses, be they taxis or hotels, which are losing out to non-VAT charging gig ride-sharers or sharing house-renters.
EU review of VAT and platform economy
The EU is also reviewing VAT treatment for the platform economy, which includes the gig and sharing economies. And the DAC 7 EU marketplace reporting requirements come into effect on 1 January 2023.
VAT Calc’s Advisor and Auditor services can help on determining and reporting the correct VAT or GST on gig and sharing economy transactions around the world.
Gig and sharing economies VAT issues: practical remedies
This series of blogs focuses on the VAT issues relating to the gig and sharing economies. These issues include:
- a definition of the gig and sharing economies, explaining the differences between them and the relevant VAT nuances;
- an explanation of VAT implications for the gig and sharing economies, and the challenges for tax authorities, individuals and marketplaces;
- a spectrum of potential VAT actions for the gig economy for these issues, from the voluntary to the mandatory;
- the attractions and challenges of making marketplaces responsible for VAT collections in the form of withholding taxes or as the VAT principal;
- a review of how related regulatory and employment cases in this area are pointing toward more VAT liabilities for the marketplaces; and
- lastly, a mention of crowdfunding VAT issues, a unique area of the sharing economy.
VAT focus: but employment and regulatory issues cannot be ignored
Income tax, employment and regulatory problems, and potential remedies, have already been widely debated in reports produced by Taylor, et al.,2 the Office of Tax Simplification3 and elsewhere. In the UK, IR 35 rules on off-payroll workers came into effect in April 2020, with a pre-launch review announced in January2020.
Nevertheless, these blogs includes a review of some employment and regulatory cases which are having a direct impact on UK and wider VAT policy in both economies.