Digital earners should prepare to pay more tax

What part of your income do you view as taxable? The correct answer (whether you like it or not) is, beyond your personal allowances, all of it. Yet, says HM Revenue & Customs (HMRC), 54% of those who use “sharing sites” do not see it as a potentially taxable activity. To them, it is merely “extra money”.

There are various reasons why this might be, but the two main ones are lack of knowledge (most people have always had an employer as a middle man, so have no idea why or how to engage directly with the taxman) and dishonesty (“there will be a minority who try to avoid paying their fair share”, says the Treasury).

Both groups might soon be in for a shock. This week, the Treasury announced a consultation into how it can help these platforms to “support” users to pay their taxes, perhaps by having them report their income direct to HMRC to chase the tax due, or by forcing them to deduct cash at source.

There are plenty of ways to do this – in Estonia, you can opt in to have your data recorded and “pre-populated on your tax return”; in Belgium, sites have to withhold a flat 10% on transactions. Either way, I think we can be sure of an encouraging (and sorely needed – see this week’s issue for details on the Spring Statement) rise in tax receipts once a new system is agreed.

Still, those using the sharing economy aren’t the only ones about to find themselves paying a tad more tax than they say they think is due: their facilitators are in the firing line too. As they stand, says the government, the tax affairs of the big technology firms threaten to “undermine the fairness, sustainability and public acceptability of the corporate tax system”. This is “a challenge that needs to be solved”.

It is also one that can be solved – HMRC’s latest position paper on the matter suggests (as MoneyWeek often has in the past!) that we should tax the revenues of firms operating in the UK rather than (as is usually the case) just their (shiftable and manipulable) profits.

All of this should (to the extent that anything to do with tax can) be seen as good news. Firstly, Philip Hammond is consulting very widely on these issues – the lack of sudden announcements and gimmicks in his statement this week was a joy. But it is also because the UK needs a long-term tax plan.

The burden on low- and middle-income groups is constantly being cut (witness the ever-rising income-tax allowance) and, contrary to popular belief, “the rich” cannot fund everything Britain’s needy electorate demands.

So, barring a sudden (and impossibly unlikely) cut to the size of the state, HMRC does have to be clear on where the money will come from. Making sure the digital economy pays its way is an obvious part of the answer. If you make money from it, be ready to pay more in tax than you do at the moment. If HMRC gets its way (and it usually does), you are going to have to.