Tax & admin · 11 July 2017

Taylor review looks to end cash-in-hand tax avoidance worth £4.4bn

painter man at work with a roller, bucket and ladder, bottom view
HMRC calculated as much as £4.4bn was left untaxed through cash-in-hand work in 2016

Informal cash-in-hand work could soon be accountable to HMRC, as the government-commissioned Taylor review recommends full taxation of revenue in the so-called “hidden economy”, with a line of potential workplace benefits going the other way.

As part of seven recommendations handed to government to resolve the challenges of today’s self-employment landscape, the report’s author, Royal Society of the Arts chief Matthew Taylor, told BBC Radio 4’s Today show that a “more level way of taxing labour” would close a public finance black hole from lost tax revenue.

Taylor cited typically cash-in-hand jobs, such as window cleaning and decorating, as worth as much as £6bn a year, representing a significant revenue boost to public finances if taxed properly.

As part of the trade-off, cash-in-hand self-employed workers would be brought into a framework that reflected traditional employment. Better protections would include pension entitlement and sickness insurance.

In March, Taylor told Business Advice that government could as an “enabler” to open such services for the self-employed.

“We could ensure we’re collecting the tax that needs to be collected, that self-employed people are competing on a level playing field by the same rules, but at the same time we can provide a real change in the support we give to self-employed people.”

Taylor said he saw potential in this structure to lift the administrative burden for the next generation of self-employed workers.

The review, released Tuesday 11 July, will now clarify how this system could look, with transactions made through contactless payment platforms and PayPal to tackle cash-in-hand tax avoidance.

HMRC figures have previously suggested as much as £4.4bn of tax revenue through cash-in-hand work in the hidden economy was left uncollected in 2016.

Gig economy workers

A central aim of the Taylor review was to clarify the status of workers in the so-called “gig economy”.

Under the review’s recommendations, companies employing on-demand workers, including big players like Uber and Deliveroo but also the growing number of startups dependent on a stream of flexible staff, would see employment relationships shifted.

As expected, workers who have the terms of their work dictated by the employer, but without a fixed contract, would be classified as “dependent contractors”. This would give gig workers rights to closer reflect traditional employment, such as sick pay and holiday entitlement.

For employers, this would mean paying national insurance contributions to HMRC on their behalf at 13.8 per cent of a worker’s earnings above £157 per week.

Zero-hours contracts

Ever since the Work and Pensions Select Committee likened Mike Ashley’s Sports Direct warehouse to a “Victorian workhouse”, the government has faced calls to ban zero-hours contracts.

Taylor made clear the review would not recommend zero-hours contracts be outlawed, due to the model being favoured by many working people.

Instead, a “right to request” would be given to workers seeking full-time employment.

Commenting on the review’s recommendations, Chris McCullough, CEO of employee scheduling firm Rotageek, warned against too much tightening of the flexibility enjoyed by many workers and employers.

“Startups have continued to challenge the norms around flexibility, but the legal framework isn’t yet in place and governments need to catch up to this trend as quickly and as efficiently as possible,” he said.

“It’s right that the government is working to address this mismatch, but it shouldn’t take a heavy-handed approach that might turn off employers and workers.”

Striking a more sustainable work-life balance, McCullough added, should be a priority for government to deliver a productive economy.

“The gig economy can work for both sides; essentially, happier employees will always make for stronger businesses. If employers value these workers, they need to ensure they’re protected if they’re unwell or simply want a holiday.”

Read our damning insider’s account of working for Deliveroo

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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