Your guide to gig economy taxes

The ‘gig economy’ is a tempting way for people to earn extra cash by using one of the many available online platforms to do short term, no contract jobs, or ‘gigs’. Although this is a developing area of the economy, there are some important tax issues to be aware of. Keep reading this article to understand what your tax responsibilities are, by looking at the following areas:

• What is the gig economy?
• What taxes apply to those who work in the gig economy?
• How do you pay taxes if you work in the gig economy?

The gig economy is the environment created by the new ‘gig’ type of work that people are using to earn multiple streams of income or to have a side hustle on the side of their full-time work to make extra cash. 

Gig economy workers are paid for each individual ‘gig’ they do. These gigs can be services such as food delivery, a car journey service or package delivery. In this economy, the worker is acting as a self-employed person instead of an employee and is paid per job, instead of being paid a salary.

In this market, people might work for several companies on a job-by-job basis without a fixed contract. While this allows workers greater flexibility, it does not give them job security or the benefits that employees enjoy such as sick leave, paid holiday and their taxes being taken care of by the employer.

The gig economy spans many industries, but may be most familiar to people as ‘side hustles’ such as Amazon delivery jobs, driving Uber, or delivering for a food service such as Just Eat or Deliveroo. There are also many platforms that allow people to do errand work, such as TaskRabbit, or work freelance jobs such as Fiverr or Upwork. Contractor jobs at companies may also be categorised in the gig economy if their agreement has them working to complete some work, and their contract is over when the work runs out.  

If you work in the gig economy you will be classed as self-employed for the gig work that you carry out. If you do the gigs on the side of full or part-time work where you are an employee of a company, then you can be classed as both employed and self-employed in the eyes of HMRC.

Once you are self-employed you will be responsible for reporting your own tax on income you have gained from your gig work.

First, if you earn less than £1,000 from self-employment, then it will not be subject to tax but you should still declare it to HMRC. You have a tax free amount of earnings, set at £12,570 (2021/2022) called your personal allowance. 

Say you are employed part-time by another company and you earn £7,000 from that and make £3,000 profit from gig economy jobs on the side. You would still not have to pay tax as your £10,000 earnings are less than the personal allowance limit. 

If you make more than the personal allowance from employment, then your employer manages your tax and NI contributions. But in our example, if you are employed and make £20,000 from this work, and make £3,000 profit in the gig economy, you would pay your own tax to HMRC on the £3,000 only.

You only pay tax on your profit made on your income. So if you earn £5,000 (revenue) from gig economy jobs, but pay £1,500 on expenses (this could be petrol, or travel expenses or any other cost that you have to incur in order to carry out your work), then you will only pay on the £3,500 profit you made (revenue minus expenses). You must keep proof of your expenses, such as receipts or invoices, to accurately record your total costs.

When it comes to National Insurance contributions, you will pay these if your profits are more than £6,515 (for 2021/2022) and this will contribute to Class 2 National Insurance, which gains you access to the benefits system in the UK. You can voluntarily pay NI if you earn less than this too so that you can access the benefits that you might need without the reassurance of employers benefits.

You’ll have to register your status as self-employed with HMRC. You must be registered by October 5th of the year following when your new activity and income started. The simplest way to register is to fill in the form CWF1 online. 

You’ll then have to submit a self-assessment of your income, from which your tax bill will be calculated. You should have submitted and paid your final tax bill by the following January 31st, to avoid any penalties.

When completing the self-assessment, you will total up all the income you have made from gigs and declare that as your revenue. 

You will then total up any expenses you have incurred, from running your business or doing the gigs, and that will be deducted from your revenue to create your profit total.

 You’ll then be charged 20% tax on this profit, and you’ll be issued with a final tax bill that covers your tax and NI contributions that you must pay back to HMRC before the 31st of January of that year. 

For example, if you make £3,000 profit from gig work, you’ll pay £600 (20% of £3,000) back to HMRC after submitting your self-assessment.

When you’re running your own business, it’s important to keep your personal and business finances separate from day one – to save yourself from time-consuming tax admin further down the line. 

By setting up a Countingup business current account, you can manage all your income streams in one place. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. 

You can view real-time insights into your self-employment finances, by allowing you to create invoices, and use the business current account card for business costs. It also allows you to calculate tax estimates so that you can keep on top of your tax bills and expenses effectively. 

Download the Countingup app to apply for your business current account in minutes. All you need is proof of ID and a selfie. Download the app here.