Tax essentials for digital platform workers and others in the gig economy from LITRG

Many untied users work in the gig or platform economy. We have special landing pages and content for you which will be linked through your platform (contact us if you don't know if your platform is included).

In late 2022, we asked LITRG - the Low Incomes Tax Reform Group from the Chartered Institute of Taxation - to answer common questions asked by people earning on platforms. These have been used as part of the content in the special sections and when people have asked for help. We're now putting it here as we are getting more general enquiries and the content is excellent. We thank them for the information below.

When working in the gig economy - perhaps delivering goods or takeaways, tax is often the last thing on your mind. But staying on top of your taxes is very important, for many reasons. In this article, the Low Incomes Tax Reform Group (LITRG) (https://www.litrg.org.uk/), an initiative of the Chartered Institute of Taxation, explain some key tax issues for gig workers, in a helpful FAQ style.

LITRG have a guide on 'Tax if you work in the gig economy' which will give you some of the basic knowledge you may need about the UK tax system. This article goes into more detail on the main points and provides further information on specific topics.

The tax system can be complicated. We can’t cover everything in this article but often link you to more information on the LITRG website. This article is intended to give general information, not individual advice, how it applies to you will depend on your exact circumstances. If you are using untied to do your taxes, you may be able to ask them if you have any further questions or check their support tab for more articles and FAQs. If you need additional help – see our getting help page for details of free and paid tax advice.

Quick links:

I have just started working in the gig economy - what do I need to do for my tax?

How do I fill out a tax return?

I have started working in the gig economy but also work elsewhere – what do I need to do?

I work for multiple platforms in the gig economy – are there any particular things I should know?

Do I need to create a limited company or register for VAT?

What is the trading allowance?

What expenses can I claim?

How do vehicle expenses work?

What if I make a loss from my gig economy work?

What information do I need to keep?

How much tax and National Insurance will I pay?

I have received a penalty for not filing a tax return - what should I do?

I can’t pay my tax bill – what should I do?

What should I do if I finish working in the gig economy/leave the UK?

Where can I get more information on tax, including in other languages?

I have just started working in the gig economy - what do I need to do for my tax?

Most gig economy work is done on a self-employed basis. If you are self-employed, you pay any tax and National Insurance contributions (NIC) you owe to HM Revenue & Customs (HMRC) yourself. This is different to if you are an employee, where your employer deducts tax and NIC from your wages and pays it over to HMRC for you.

You work out your tax and NIC by filling in a form called a Self Assessment tax return by the 31 January following the end of every tax year. The form has sections for your income and expenses. It is your responsibility to make sure your tax return is completed accurately and on time – even if you use untied to keep your records and to file it.

If you are newly self-employed and aren’t already in the tax return system, you will need to register with HMRC as self-employed so that you can submit a tax return. This is why the UK’s tax return system is called ‘Self Assessment’ – the responsibility is on you to let HMRC know if you need to file a tax return. HMRC say all self-employed people should file a tax return - the exception to this is if you are earning £1,000 or less from your total self-employment work and are claiming the trading allowance (see question 6 below). In this case, you may not need to let HMRC know about your gig work or fill in a tax return.

The deadline for telling HMRC you need to file a tax return is 5 October after the end of the tax year in question. Although you should try and meet the deadline, all is not lost if you miss it as we explain here.

Once you have registered, HMRC will send you a Unique Taxpayer Reference (UTR) which is your reference for the tax return system. If you are going to complete your tax return online, you will also need government gateway log-in details so that you can access HMRC’s online services system.

If you are already in the tax return system but aren’t registered as self-employed, you can keep your existing UTR but will need to tell HMRC you have become self-employed – more on this at question3 below.

There is more detailed information on how and when to register for tax and NIC on the LITRG website.

From the first day you start working, you will need to keep accurate records. You do not need to use an accountant to draw up formal accounts as you go along but you need to keep track of your income and expenses. An app like untied might be able to help you with record keeping. See also this section on keeping records.

untied note: you can also register with HMRC through untied - it's included in untied paid plans.

How do I fill out a tax return?

Filling out a tax return for the first time can be daunting but the good news is that many of the boxes on the tax return will not be relevant to you. This means that if you are completing your tax return online you will probably only need to complete a small part of the tax return once you get past the general opening section.

You will need to work through the ‘tailor your return’ questions, including your personal details etc. and then fill in the specific sections on self-employment to report your gig work (as well as any other additional sections that may be relevant).

Most people doing gig work use what is known as the cash basis to work out the figures for their tax return (that is what was earned less what was spent = taxable profits) rather than the traditional accruals basis, where sometimes income or expenses are ‘counted’ before or after they actually occur. See question 8 for a link to more information on the cash basis and the accruals basis.

To understand what help is available with completing a tax return, see the guidance in our getting help page. This might be from a professional adviser, the tax charities, an app like untied, or even HMRC. If you want to try and do it yourself, we have lots of information to help you on our website and we have a case study in our self-employment guide which covers the self-employment pages on the tax return.

I have started working in the gig economy but also work elsewhere – what do I need to do?

What you need to do depends on whether you are:

• currently employed,
• are already self-employed
• or complete a Self Assessment tax return for another reason.

Remember, if you are earning £1,000 or less from your total self-employment/casual work, then you may be able to claim the trading allowance (see question 6 below).

Assuming you are not claiming the trading allowance, then the table below shows what you need to do depending on your situation. There are links to further information on the LITRG website where relevant.

I work for multiple platforms in the gig economy – are there any particular things I should know?

Many people in the gig economy work for different platforms at the same time, for example by offering delivery services for several different delivery apps.

If you work for multiple platforms, the income earned from each different platform could be small and so appear to fall under the trading allowance (see question 6). However, if you combine it, it could mean that you earn more than the £1,000 trading allowance threshold, or you could earn enough to start paying tax and/or National Insurance contributions (see question 11). The £1,000 threshold looks at income before any expenses are deducted.

When preparing your tax return, it is important to include income from all the different self-employment platforms and be careful to only deduct business expenses once if they relate to more than one income stream. For example, if you are a delivery driver and your bike needs repairing then that cost should only be deducted once in total, even if you use your bike to deliver for several different delivery apps (more on expenses in question 7).

Do I need to create a limited company or register for VAT?

Do I need to create a limited company?

No. Running a limited company is one way of being a business – but it is not the only way. You can also be a sole trader (also called self-employed) for example, which we talk about in this article and which is generally much more straightforward.

Limited companies are cheap and easy to set up in many cases. However, a company is not a suitable way for all new businesses to use particularly if there is only modest income earned because of the administrative requirements. You can read more here.

Do I need to register for VAT?

Possibly. You do not need to register for VAT until your sales income reaches a very high threshold (currently £90,000).

You may hear of people in the gig economy with income under this threshold who register for VAT ‘voluntarily’ however, as we set out in our news article, entering the VAT regime is not something to be undertaken lightly.

What is the trading allowance?

The trading allowance covers income from self-employment as well as casual income and miscellaneous income (for example, where you do something on a one-off basis and get paid for it). It means that you can earn gross income of £1,000 or less without having to declare it to HMRC. This means you may not have to register your self-employment or fill in a tax return.

You measure the £1,000 amount by looking at your self-employment/casual income before any business expenses are deducted. When doing this, remember that expenses like platform fees can be taken off your income before it is transferred into your bank account (more on this in question 7 below). You also need to add together all your self-employment/casual/miscellaneous income. This may mean you are not able to use the trading allowance if you are already self-employed but then start doing additional gig work.

If you earn more than £1,000, then HMRC say you do need to complete a tax return, but the trading allowance can still be helpful to you. This is because you can use the £1,000 trading allowance as an expense rather than deducting actual business expenses –which is advantageous if you only have a few actual expenses. It’s worth remembering the full £1,000 amount is available even if you start trading part-way through a tax year – it is not pro-rated.

It is not beneficial for everyone to use the trading allowance so check before you claim it. There’s more information on the trading allowance on the LITRG website, including a news article on what to do if you have used the trading allowance incorrectly.

untied note: untied claims the trading allowance automatically if your expenses are less than the allowance and if you have not made a loss.

What expenses can I claim?

You pay tax and NIC on your taxable profits. Business expenses can be deducted from your income to reduce your taxable profits and consequently your tax and NIC bill.

Most expenses that you incur doing your gig work are allowed. Some common expenses gig workers might claim include:

• insurance
• platform fees
• PayPal or banking charges
• uniforms
• phone/internet
• and vehicle costs (more on these in question 8 below).

As you may use your phone and vehicle for personal as well as business - you may need to consider what proportion relates to your self-employment and what relates to personal use.

Expenses which are not allowed include entertaining, most subsistence costs (such as lunches when you are at work) and clothing unless it’s something you only use for work – for example specific reflective clothing for cycling at night which you only use when delivering takeaways.

Make sure you don’t double-count any expenses by including the same expense twice as this will under-state your taxable profits and could mean you pay too little tax and NIC. This may occur if you have an expense, such as platform fees, which is taken off your income before it is transferred into your bank account, and you take this ‘net’ amount as income but then also deduct the platform fees as a separate expense. To make sure your figures are accurate when dealing with these types of expenses, you need to make sure you add the expense back on to the amount you have received in your bank account and then deduct the expense separately. There is an example illustrating this in our news article and more information on expenses on the LITRG website.

If you have purchased a capital asset to use in your business such as vehicle or IT equipment then how you treat this for tax purposes, depends on whether you are using the cash basis or accruals basis (see question 2). We cover these in more detail on our website including how you treat capital assets on your tax return.

untied note: untied does not support the accruals basis. The cash basis of "follow the money" is more straightforward for people to understand.

How do vehicle expenses work?

There are two approaches to calculating business expenses relating to vehicles. You can either use the simplified mileage rates OR claim a business proportion of actual costs and /or capital allowances. You can’t claim both.

The simplified expenses approach gives a fixed amount per business mile depending on your annual business mileage and the type of vehicle you use.

The alternative method means keeping records of any expenses connected with your vehicle and working out what proportion of these costs relates to business use only. Expenses include:

• Petrol and/or diesel
• Oil
• Repairs
• Servicing
• Insurance
• Vehicle excise duty (also known as car tax)
• MOT certificate

The LITRG website has a table showing the different simplified fixed rates depending on your circumstances such as type of vehicle, annual business mileage and whether you use the cash or accruals basis to prepare your accounts.

You need to be careful about not counting ‘ordinary commuting’ as business mileage. For example, if you are a courier and travel regularly to a depot to take instructions or collect parcels before you go out on your rounds, then HMRC might class this as ordinary commuting.

What if I make a loss from my gig economy work?

To make a loss you must have more allowable deductions (such as expenses) than income earned through your self-employment. This would be quite unusual in gig economy work where you are essentially making money from your time rather than, for example, buying stock to sell or a having a big outlay such as rent on business premises or equipment.

If you do make a loss then what you can do with it depends on factors such as:

• Have you just started or are finishing your gig work?
• Do you use the cash basis or accruals basis to prepare your tax return?
• Do you have other taxable income in the tax year?

The table on our webpage ‘What if I make a loss?’ explains exactly what you can do with your loss depending on your circumstances.

Remember the trading allowance cannot be used to make a loss.

What information do I need to keep?

You need to keep records of your business income and expenses to prepare an accurate tax return or prove that you can claim the trading allowance (if you don’t need to prepare a tax return). Also, HMRC may write to you asking for further information about a tax return you have already completed and sometimes they want to see your business records as part of their enquiry.

Business records may include:

• payment slips,
• invoices,
• receipts,
• bank statements.

You don’t need to open a new bank account for your gig work, but you may prefer to so that your self-employment finances are kept separate from your personal ones.

You need to keep business records for at least five years after the 31 January tax return filing deadline. So, for the 2021/22 tax year you need to submit your tax return to HMRC and pay tax by 31 January 2023 and keep records relating to this tax return until 31 January 2028.

Currently, you can keep paper copies or emails of business records. There is more information on keeping business records on our website.

How much tax and National Insurance will I pay?

You can normally earn a set amount of taxable income each year before you start paying tax and National Insurance contributions (NIC). After that, the general rule is that the more you earn, the more tax and NIC you pay.

If you have started working in the gig economy and you have not been self-employed before then it can be a bit confusing about how your tax and NIC are calculated. Usually, it is calculated for you automatically as part of completing your tax return, but it is useful to understand how it works.

The illustration below shows how tax is calculated using 2021/22 tax rates (this tax return is due on the 31 January 2023). Note that there has been an increase in the threshold at which you pay National Insurance - during it is being aligned with the personal allowance of £12,570 from 2023/24.

Callum starts working in the gig economy in April 2021. He is based in England and has gig economy income of £16,500 and business expenses of £3,125. He has no other taxable income.

His income tax and NIC for the 2021/22 tax year will be calculated as follows:

I have received a penalty for not filing a tax return- what should I do?

The online filing deadline is the 31 January after the end of the tax year. Penalties are automatically applied if you do not meet the deadline. The penalties can be quite harsh and are applied even if you have no tax or NIC to pay. If you have a ‘reasonable excuse’ for not filing your tax return, you can appeal the penalties.

If you have received a penalty notice from HMRC for not filing a tax return – do not ignore it. The amount of penalty will increase if you do not sort this out with HMRC. It may be the case that you can and want to appeal the penalty, in which case there are time limits to do so. For more information, see the LITRG website.

If you did not file your tax return because you did not consider it was required (for example, because you are no longer self-employed), then you need to let HMRC know. HMRC may be able to withdraw the tax return, and if they do that, you will no longer need to file it and any late filing penalties will be set aside.

If you did need to submit the tax return but you are unable to do so and cannot afford tax advice, then you should contact the tax charity TaxAid to see if they can help you get your tax affairs in order.

I can’t pay my tax bill – what should I do?

If you have to complete a tax return, you usually have to send it in and pay any taxes that you owe to HMRC by 31 January following the end of the tax year in question.

There are a number of reasons why you may not be able to pay what you owe, for example, if you don’t save up enough for your tax bill at the end of the year. You may also get caught out by ‘payments on account’. ‘Payments on account’ is when, as well paying your tax bill for the tax year just ended, you may have to pay some tax in advance for the current tax year. Some newly self-employed people fail to factor in these ‘payments on account’ when budgeting for their first tax bill and are shocked when they owe more money than expected.

The situation may not be as bad as you think if you can’t pay your tax bill, but you should act quickly. For example, by calling HMRC and explaining your circumstances or asking TaxAid to help you. If you have problems paying your tax bill, you can read more on our website.

What should I do if I finish working in the gig economy/leave the UK?

You should tell HMRC when you cease self-employment otherwise they will just assume that your self-employment is ongoing and will continue to expect tax returns from you. You will need to fill in a tax return for the year your self-employment ends – the exact date that you stopped being self-employed should be given (this will also help make sure you do not overpay Class 2 NIC).

If you leave the UK, you may have some trailing responsibilities to meet before you can ask HMRC to close down your record, so you shouldn’t think of your departure as the automatic end of any UK tax issues. If you leave things messy, you could be met with problems if ever you return to the UK. It is very important to keep HMRC up to date with your overseas contact details.

Where can I get more information on tax, including in other languages?

As well as the support section on the untied website, LITRG have an entire website with lots of free information to help you understand more about tax.

If English is not your first language, then you could use a translation tool, such as Google Translate, to translate the guidance on our website to another language. However, we cannot guarantee the accuracy of any translation tool that you may choose to use.

If you need to speak to HMRC in another language, we set out the options available to you in our guidance. For example, you can ask a friend or family member to translate for you or ask HMRC to arrange an interpreter.

If you need to find a professional adviser to help you with a tax problem or your tax return, please see our getting help page for further details on how to do this, including on how to contact TaxAid, a tax charity.