Move to gig economy is costing UK £4 billion per year in lsot tax, warns report

Matthew Taylor, head of the government’s inquiry into the way people work, confirms there is evidence that companies are deliberately using gig workers and abusing self-employment laws to avoid paying tax.

The rise in ‘gig economy’ working practices is costing the UK Exchequer an estimated £4 billion per year in lost income tax and national insurance contributions, according to a new report.

The study undertaken by trade union umbrella organisation the TUC indicated that the growth in low-paid and insecure jobs without guaranteed hours or baseline employment rights generated just over half of the shortfall at £2.1 billion. A surge in zero-hours contracts made up the remaining £1.9 billion.

The key issue, the report said, was that self-employed workers and people on zero-hours contracts earn significantly less than regular employees. As a result, they pay less tax and national insurance and often have to rely on in-work benefits such as tax credits.

Even if the self-employed do earn as much as regular employees, tax is structured so that they pay an effective rate of 22% on their income compared with 31% among in-house staff. This situation is costing the Treasury more than £75 million per week.

TUC general secretary Frances O’Grady said: “The huge rise in insecure work isn’t just bad for workers. It’s punching a massive hole in the public finances too. Bosses who employ staff on shady contracts are cheating all of us.”

The news came as Matthew Taylor, head of Prime Minister Theresa May’s inquiry into the way people work, confirmed there was evidence that companies were deliberately using gig workers and abusing self-employment laws to avoid having to pay tax as well as benefits such as maternity and holiday pay.

“There is no question – and Phillip Hammond said this in the Autumn Statement – that when self-employment rose that reduces the tax take to the Exchequer,” he said. “There are reasons why that might be a good thing in terms of how those people are working, but it is clear to a certain extent that what is actually going on is people are creating forms of work for themselves, or businesses are creating forms of work, to try to avoid tax.”

The Chancellor has expressed his concern over the situation and is expected to announce reforms to the tax system as soon as the Budget on 8 March in order to make the treatment of employees and self-employed workers more equitable.