Sharing Economy Entrepreneurs Fear Government Reforms Threaten Their Businesses

Following a recent High Court ruling, ridesharing apps such as Uber and Bolt may have to start charging UK customers VAT, with prices for consumers rising by 20%. At the same time, the Treasury is contemplating changing the way VAT is charged on sharing economy services. According to a new report from the All-Party Parliamentary Group (APPG) for Entrepreneurship on the Sharing Economy, this isn’t just a concern for tech giants, but also for many start-ups and scale-ups.

Under the status quo, workers in the sharing economy operate as sole traders and only pay VAT if they trade above the threshold. For example, a cleaner or private driver who uses an app to book jobs only pays VAT if they turnover £85,000 a year, while VAT is charged on the platform’s booking fee.

Applying VAT to the entire transaction would create an unlevel playing field because sharing economy businesses usually compete against offline sole traders who also don’t pay VAT. In the consultation one entrepreneur said the change would “essentially kill our business model.”

As well as concerns, the report raised opportunities. For example, the way that Estonia supports the self-employed was raised by a number of respondents in the report’s call for evidence. 

In Estonia, online platforms work with tax authorities allowing the pre-population of returns, making it much easier for users to confirm their income. Workers can open special business bank accounts that include automatic reporting and payments, which means they then do not have to register with the Estonian Tax and Customs board.

As Sam Dumitriu, the author of the reports says: “Instead of imposing new taxes which make the lives of sharing economy workers harder, we should make it easier for people to comply with existing rules – workers in the sharing economy are often unfamiliar with the self-assessment system, struggle to budget for it correctly, and risk fines for late or incorrect payments.”

A major concern raised by the report is access to talent. As one entrepreneur put it: “We have struggled to recruit top talent, a lot of great people I’ve seen have relocated to other European countries or back to their home country.”

The report is bullish about the recent announcements such as the Scale-Up visa, High Potential

Individual visa and Global Business Mobility visa, but raises concerns about the high fees and associated costs of sponsorship.

In the past, MPs and campaigners have spoken out against the UK’s exorbitant fees but to little avail. The UK is just one of many countries open to highly skilled workers and the above-cost fees are turning away the best and brightest. All entrepreneurial ecosystems need a ready supply of talent to flourish.

“Sharing Economy platforms have become instrumental to the growth and success of small businesses in our digitalised economy,” writes Gagan Mohindra, MP for South West Hertfordshire and Officer for the APPG for Entrepreneurship in his foreword for the report.  “These apps and platforms have not only changed the way consumers purchase goods and services but has also changed how businesses operate, enabling them to outsource tasks, such as, delivery and marketing. The sharing economy can enhance a diverse range of businesses and the further development of this sector will enable yet more businesses to take advantage of these platforms.”

In the UK, as in much of the world, the sharing economy is a thriving and innovative area of the economy. Over the past decade, venture capitalists have invested over $4.5bn in 465 different sharing and on-demand economy businesses. If the UK is to remain a hotbed of sharing economy innovation it will need to ensure the right incentives are in place.