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
Source vatcalc
