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'Gig economy' clampdown pushes up HMRC payroll tax take, says expert

Out-Law News | 14 Feb 2018 | 9:34 am | 1 min. read

HM Revenue and Customs (HMRC) recovered an additional £819 million from investigations into payroll taxes last year, up by 16% from the previous year, according to new figures.

Additional tax collected following investigations into large businesses showed an even more striking increase according to the figures, obtained by Pinsent Masons, the law firm behind Out-Law.com. Payroll tax investigations by HMRC's large business directorate yielded £503m, up 31% from the £383m collected in 2015/16, the figures showed.

Tax investigations expert Paul Noble of Pinsent Masons said that the figures showed that HMRC's focus on the 'gig economy' and clampdown on businesses which wrongly categorise workers as self-employed was bearing fruit.

"HMRC has made no secret of its suspicions of how companies classify their workers," he said. "Considering the scale that the gig economy has grown to, it is no surprise that it is now under intense scrutiny by HMRC."

"As well as its broader brush investigations in which HMRC aims to collect millions at a time, it is also combing carefully through the minor details of payroll. Even the most trivial of expenses are now being investigated," he said.

The statistics were evidence that it was much more productive for HMRC to target employers and intermediaries, rather than to pursue individual workers, Noble said. Employers should therefore "ensure that they keep up to date with HMRC initiatives and proactively review their PAYE systems", he said.

The government is currently considering whether to introduce a statutory test of employment status for tax purposes, in response to an independent review of modern working practices. A consultation, which also considers the introduction of a statutory test for employment rights purposes, closes on 1 June 2018.

As the 'gig economy' model of employment has grown, HMRC has stepped up the intensity of its investigations into businesses that it believes may be wrongly classifying workers as self-employed in order to avoid paying the full amount of National Insurance and income tax. Former HMRC chair Edward Troup has confirmed that specific complaints about 'gig economy' businesses have been passed to HMRC, while government ministers have also called for HMRC to look into these businesses.

HMRC has also established a dedicated 'employment status and intermediaries' team to focus on the tax risks associated with employment status, as well as an employer compliance review programme.

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