New HMRC taxi and ridehail app rules likely to stop drivers incorrectly claiming working tax credits

New Her Majesty's Revenue and Customs (HMRC) gig-economy requirements could finally put an end to drivers incorrectly claiming working tax credits.

In a bid to ensure tax compliance and enhance transparency in the digital platform marketplace, new legislation has been introduced mandating taxi and private hire vehicle (PHV) operators to report their drivers' earnings to HMRC.

The "Reporting Rules for Digital Platforms" legislation, which comes into effect from January 2024, aims to level the playing field for all businesses operating within the digital marketplace. Under these rules, all taxi and PHV digital platforms will be legally required to collect and report revenue data from their registered drivers to HMRC.

By January 2025, driver earnings will be reported annually and directly to HMRC. To ensure compliance, platforms will request additional details from their drivers, including National Insurance numbers, which will be recorded as part of their driver records. The initiative aims to simplify the reporting process and promote tax transparency within the industry.

While the vast majority of taxi and PHV drivers accurately account their earnings, they will see no impact from these new changes to their earnings, there have been longstanding indications that some drivers within the gig economy may underreport their income to also qualify themselves for government tax credit support typically offered to low-earners.

The scale of this practice remains unclear in the ride-hail sector, but these new regulations will put an end to submitting lower Self-Assessment tax returns. Consequently, drivers previously benefitting from tax credits may experience a loss of benefits and potentially face higher tax liabilities.

As a result, the job may then become unviable for these drivers and coverage may decrease.

With January 2025 marking the deadline for reporting driver revenue to HMRC, close attention will be paid to PHV demand in 2024 as operators begin recording driver earnings in preparation for the submission process. Currently, there are 1,146,000 families claiming both child and working tax credits, but as noted, it is unclear how many of those work in the gig-economy sector.

These regulatory changes are an important step towards achieving tax compliance and ensuring a level playing field for all businesses in the digital platform marketplace. The impact on drivers and their earnings will become clearer as the new reporting requirements are implemented in the coming months.