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APPG FOR ENTREPRENEURSHIP | APPGENTREPRENEURSHIP.ORG
DEC 2021
In partnership with
BRIEFING PAPER
SHARING ECONOMY
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FOREWORD
As a Member of Parliament, I feel responsible for ensuring businesses
thrive and there is capacity for them to invest, resulting in innovation.
Entrepreneurship and innovation are vital to the UK economy, creating or
improving goods and services for consumers, as well as keeping markets
competitive. This report sheds important light on the brilliant work that
we must continue to support businesses in doing as we recover from the
Covid-19 pandemic.
The APPG for Entrepreneurship has brought together a group of cross-
party MPs who are committed to understanding entrepreneurship and
business, informing us about different industries, innovations to improve
business and the challenges faced by businesses. The APPG has continued
to work tirelessly throughout the Covid-19 pandemic to comprehend the
changing landscape businesses have had to adapt to as well as learn about
the brilliant innovations’ businesses have had to make so they can continue
operations.
Sharing Economy platforms have become instrumental to the growth and
success of small businesses in our digitalised economy. 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. Importantly, the sharing
economy serves as an effective method of increasing entrepreneurship by
removing barriers to entry in markets, reducing the number of tasks and
capital expenditures businesses need to make to become viable.
Before becoming a Member of Parliament, I was a small business owner
in the retail sector. I understand the challenges involved with running
a business, including some of the time-consuming tasks that reduce
productivity. The APPG fully supports entrepreneurship and innovation
in this country, which the sharing economy permits. Utilising the sharing
economy enables businesses to not only grow but invest in capital and
hiring new staff, which further grows our national economy.
In my constituency of South West Hertfordshire alone there are nearly
7000 VAT and PAYE registered enterprises with a further 2.7 million
businesses registered in the United Kingdom. I am strongly focused on
helping businesses to build back better after the pandemic, which is why
the work that the APPG Entrepreneurship have done in this report is
so vital. I hope local, small-medium sized enterprises as well as larger
enterprises can utilise the sharing economy to continue to recover and
grow their businesses. This will benefit both the national economy and
consumers, who will enjoy the increased quality and efficiency the sharing
“These apps and
platforms have not
only changed the way
consumers purchase
goods and services but
has also changed how
businesses operate”
GAGAN MOHINDRA MP
Member of Parliament for South
West Hertfordshire
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economy can deliver.
I welcome this APPG for Entrepreneurship report and the hard work that
has been conducted by Sam and his team. The call for evidence collected
data from a variety of sharing economy platforms, highlighting the
diversity of the sharing economy and the wide range of UK businesses that
operate in this space. 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.
The report suggests businesses desire a level-playing field in relation to
taxes compared to offline businesses. The APPG supports the findings
of this report, concluding that a fair and sustainable tax system would
allow businesses on sharing economy platforms to compete, benefiting
consumers. As legislators, work like this provides a vital reference point
to continue to ensure the Government is on the right track to help
entrepreneurs across the country thrive. We will use these recommendations
to inform our decisions, with better knowledge of the practices as well as
challenges that small businesses face.
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EXECUTIVE SUMMARY
– Nearly half of the UK population use sharing economy apps to access
goods and services.
– Over the past decade, venture capitalists have invested £3.47bn in 465
sharing and on-demand economy businesses, according to data provider
Beauhurst.
– The responses to our Call for Evidence highlight the diversity of
businesses in this fast-growing sector – they range from the more
ubiquitous ride-hailing and delivery operators, to services which
connect freelancers to consumers in wellness and household services, to
platforms which promote environmental sustainability by lending baby
clothes.
– In many cases, sharing economy platforms formalise and digitise
existing offline business and employment practices.
Taxation
– There is a broad consensus between sharing economy entrepreneurs
and groups representing or working with them that there should be a
level-playing field on taxation between sharing economy platforms and
traditional offline businesses.
– The reaction from sharing economy entrepreneurs to HM Treasury’s
consultation on applying VAT as standard to all sharing economy
transactions, not merely the transaction fee the platform charges, was
uniformly negative.
– It was believed that applying VAT would put platforms at a significant
disadvantage compared to offline competitors who sold their services
directly to consumers and were under the VAT turnover threshold.
One entrepreneur said the change would ‘essentially kill [their] business
model.” Another argued this could be a net-revenue loser for HMRC
as it could push people away from platforms to the grey ‘cash-in-hand’
economy.
– There was support, however, for increased requirements for platforms to
report the income of sellers on their platform to tax authorities, with the
caveat that any reporting requirements were determined in line with the
OECD process and were consistent globally.
– Concerns were raised around the process of self-assessment. Workers
in the sharing or gig economy are often unfamiliar with the system,
struggle to budget for it correctly, and risk fines for late or incorrect
payments. To address this problem, HMRC should use creative
solutions by trialling initiatives such as a specialist helpline and checklist
SAM DUMITRIU
Research Director, The
Entrepreneurs Network.
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for sharing economy workers.
– The model used by the Estonian authorities was highlighted positively
by multiple respondents. Online platforms work with tax authorities
allowing prepopulation of returns, making it much easier for those
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.
– Multiple entrepreneurs told us they believe the Seed Enterprise
Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS)
have “played a huge part in driving the startup ecosystem” and would
not change them. However, one entrepreneur told us that many sharing
economy businesses are effectively banned from accessing the reliefs as
asset leasing is an excluded qualifying activity. This makes it significantly
harder for sharing economy startups with a sustainability focus to access
capital.
– HM Treasury should consult on revising the definition of asset leasing
to allow sustainability-focused businesses to access venture capital reliefs,
while still excluding non-innovative businesses with low-risk-to-capital
such as ship chartering from access the reliefs.
Regulation
– Most respondents believed the UK’s historic approach to regulating the
sharing economy has been positive. By adopting a light-touch approach
that does not impose additional obligations on digital businesses, the
sector has been able to flourish.
– However, many entrepreneurs were keen to stress that it was a myth
the sector was unregulated and highlighted the many obligations that
platforms and third-parties had to engage with.
– There were concerns that the UK’s regime was being undermined
by uncertainty over future regulation. One entrepreneur suggested
“extreme caution is necessary to avoid [new] regulation destroying [the]
significant innovation, growth and value that the sharing economy has
created for both buyers and sellers.” Additionally, we received reports
that investors believed a lack of clarity over regulation and legislation
was a reason not to invest.
– The key concern for entrepreneurs was around employment
classification. Some were concerned that the increased tax liabilities
from worker status would drive independent workers to the cash-in-
hand economy, where they had fewer protections.
– Others told us that they were reluctant to act on matters of professional
standards and service quality in unregulated trades for fear of incurring
additional tax liabilities.
– There was no clear consensus on whether the employment status of gig
workers should be determined through law. The Coalition for a Digital
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Economy (Coadec) argued that legislation would resolve uncertainty,
while Sharing Economy UK opposed it as they believed it would restrict
the flexibility people value and create additional barriers to the labour
market, rather than increase clarity for businesses and individuals.
Startup Ecosystem
– The UK’s startup ecosystem is generally favorable to sharing economy
entrepreneurs with high levels of access to capital.
– However, access to talent is an issue at both the high-and low-skilled
level. This is likely to have been exacerbated by the UK’s exit from the
European Union and the pandemic.
– In some cases, this has led startups to move part of their operations
overseas, with obvious knock-on impacts to the UK economy, and
working against the Government’s ambition to grow more start-ups to
IPO in the UK.
Recommendations
– Maintain a level-playing field in taxation between online and offline
businesses by rejecting any initiatives that impose a higher VAT burden
if a service is booked through an online platform rather than offline
with pen and paper.
– The Government should work with the OECD to develop new fair
third-party reporting requirements for sharing economy platforms.
– The Government should ensure all genuinely innovative businesses
where there is risk to capital can access venture capital tax breaks such as
EIS and SEIS by reforming asset leasing rules.
– The Government should actively investigate implementing an Estonian-
style tax system for workers in the on-demand economy.
– The Government should not make any changes to employment status
that risk undermining the flexibility that attracts workers to platforms.
– The Government should ensure that high visa fees do not act as a barrier
to startups hiring international talent.
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INTRODUCTION
In his book, Tomorrow 3.0: Transaction Costs and The Sharing Economy,
economist Michael Munger makes the observation:1
“Right now, we own stuff. I do, you do, the people across the street
who can’t get their car in the garage do . . . we own a ton of stuff.
But people don’t fundamentally want stuff. What they want is the
stream of services that stuff provides over time. So if people own
stuff—clothes, tools, cars, houses—rather than rent that stuff,
it is because owning secures services more reliably and at lower
transaction costs than renting.”
What makes the sharing economy revolutionary is the way digital platforms
have enabled us to access the benefits of owning “stuff” without actually
owning anything. This has unlocked a myriad of benefits, from saving
consumers money (e.g. why pay to own power tools when you only use
them once a year), expanded choice, and less impact on the environment.
It also doesn’t just apply to stuff, but work too. It has allowed more people
to enjoy the flexibility and freedom of earning independently, without
the hassle of networking, negotiating, or renting premises. There are
productivity benefits too, by better matching buyers and sellers, workers
are able to earn more by doing more jobs in the same amount of time and
spend less time waiting around.
The APPG for Entrepreneurship’s call for evidence and roundtable
discussion on the sharing economy highlights the sector’s diversity and its
potential to transform almost every industry. Respondents to the APPG’s
Call for Evidence span sectors from beauty and wellbeing to travel and
tourism, and almost everything in between. We even encountered a
sustainability-focused startup which allowed parents to share baby clothes.
The Sharing Economy has been a key growth pillar for the UK economy.
Over the past decade, venture capitalists have invested £3.47bn in 465
sharing and on-demand economy businesses, according to data provider
Beauhurst.2 Polling conducted by Public First, on behalf of startup industry
group Coadec , found that almost half of the British public use sharing
economy apps to access goods and services.3
Sharing economy businesses, which for the purposes of this research will
1 Munger, M. C. (2018). Tomorrow 3.0: Transaction costs and the sharing economy.
Cambridge University Press.
2 Beauhurst, authors’ analysis.
3 Submission, Coadec.
“Over the past decade,
venture capitalists
have invested £3.47bn
in 465 sharing and
on-demand economy
businesses.”
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be defined broadly to include on-demand and gig economy businesses
such as Uber, Deliveroo, and Fiverr, digitise and formalise existing offline
business practices. For example, one submission to the APPG’s Call for
Evidence pointed out that in the beauty industry workers are traditionally
self-employed and many salons operate on a seat-rental model where
practitioners rent a space or agree to a form of profit sharing.4 Sharing
economy apps build upon these pre-existing business models, using
matching algorithms and network effects to match buyers with sellers
of goods or services. In many cases, bookings made before the advent of
sharing economy apps would be processed via pen-and-paper. It is clear
to understand the benefit of this digitisation for the Exchequer, as fewer
businesses rely on traditional admin and cash in hand payments, which are
harder for HMRC to track and tax correctly.
Although the sector has grown rapidly in the UK - and offers clear benefits
for the Treasury, consumers and for access to earnings opportunities -
sharing economy entrepreneurs are expressing concerns about the direction
of policy. In particular, changes to tax and regulatory policy could have a
significant impact on investment in the sector.
This APPG for Entrepreneurship report sets out the key issues that
entrepreneurs in the sharing economy are concerned about. It advocates
for a continued level-playing field on tax and for preserving the regulatory
environment that has allowed the sector to flourish, while also empowering
platforms to prioritise standards.
Taxation
In the responses to our Call for Evidence, there was a broad consensus
between sharing economy entrepreneurs and groups that represent or work
with them that there should be a level-playing field on taxation between
sharing economy platforms and their offline competitors.
There was a general agreement that, outside of a few exceptions, the status
quo was broadly fair. This is significant because HM Treasury recently
consulted on major changes to the way VAT is applied to sharing economy
platforms.5
Under the current system, online platforms are required to pay VAT on
their transaction fee, while people providing a service on the platform
(e.g. a minicab driver, host, or cleaner) pay VAT on the remainder of the
transaction. As self-employed workers often have trading incomes below
the £85,000 VAT registration threshold, this will leave the majority of the
transaction untaxed.
HM Treasury’s consultation on VAT was a response to concerns that the
rise of the sharing economy is narrowing the tax base. In theory, this would
4 Evidence Submission, Jack Tang - Urban.
5 VAT and the Sharing Economy: Summary of Responses, HM Treasury.
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be possible if a freelancer was previously providing the same service as an
employee of a company above the VAT registration threshold. However,
in many cases sharing economy platforms engage freelancers or sellers who
would not otherwise be above the VAT registration threshold of £85,000.
For example, a cleaner or childcare professional who uses an app to arrange
their services is typically in competition with offline businesses who are
also below the VAT registration threshold. Changing the status quo would
result in an unlevel playing field for Sharing Economy businesses.
Multiple entrepreneurs who responded to our consultation believed
that applying VAT to the entire transaction would also put them at a
competitive disadvantage to their primary competitors, who would still be
below the registration threshold for VAT.6
Although consumers use sharing economy apps for multiple reasons,
including choice and convenience, price is a major factor. Polling
commissioned by Coadec found that 39% of consumers agreed “If Gig
Economy apps were more expensive than the alternative, I would stop
using them”, while just 9% disagreed.7
One entrepreneur told us the change would “essentially kill our business
model”, while another said costs would “be passed onto the consumers
and practitioners. This would destroy the value of our platform and all
the benefits and opportunities created.”8 There is also a risk that this move
could push trade towards the grey or cash-in-hand economy, which could
have negative revenue implications by increasing opportunities for evasion.
The Institute for Fiscal Studies’ Stuart Adam argues that tax should aim to
be neutral across different legal and commercial arrangements. Ultimately,
he argues, questions such as ‘Is the worker employed or self-employed?’ or
‘Is the platform providing the service to the customer, or merely connecting
the customer to the service provider?’ should be irrelevant to tax. In the
long run, the only way to make this possible would be to reduce the tax
incentives for businesses to fragment (e.g. by outsourcing employee roles to
external contractors).9 This would involve aligning business and individual
tax rates, as well as reducing the VAT threshold. In practice, this would be
politically difficult and in the absence of structural reform, ad hoc changes
targeting innovative business models are ill-advised.
At the most recent Budget, it was announced that HM Treasury would
consult on the arguments for and against implementing an Online Sales
Tax. Any revenue raised from the tax under consideration would be
used to reduce Business Rates. A key difficulty for any Online Sales Tax
would be limiting its impact on independent and freelance users of online
platforms. Past attempts to tax online platforms such as the Digital Services
6 Evidence Submission, Avin Rabheru - Housekeep.
7 Evidence Submission, Coadec.
8 Evidence Submission, Avin Rabheru - Housekeep and Jack Tang - Urban.
9 Stuart Adam (2020). “How should platforms and gig economy workers be taxed?”
Institute for Fiscal Studies.
“Changing the status
quo would result in an
unlevel playing field
for Sharing Economy
businesses.”
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Tax have been passed on to SMEs and consumers. Additionally, many
of the arguments against unilaterally applying VAT to sharing economy
transactions apply equally to proposals to levy an Online Sales Tax.
There was, however, support for increased requirements for platforms to
report sellers’ income to tax authorities in order to prevent tax evasion.
However, as many sharing economy businesses trade in multiple markets,
any new requirements should be developed at the OECD level.10
Greater cooperation between tax authorities and sharing economy
platforms could also have benefits for the self-employed. One respondent,
the Low Incomes Tax Reform Group (LITRG), noted the sharing economy
has led to a rise in the number of individuals who are required to file self-
assessment tax returns. Individuals who have traditionally paid their taxes
through withholding (PAYE) are often unfamiliar with the system.11 As a
result, they can struggle to budget for tax payments, not seek independent
professional advice, and in some cases, fail to register at all.This can lead to
penalties for late payment.
In their submission, LITRG drew attention to the Construction Industry
Scheme where invoiced payments made to self-employed construction
workers are withheld at a rate of either 20% or 30%. The withheld
payments are sent to HMRC as an advance for the worker. A similar
scheme targeted at the freelancers in the gig and sharing economies would
have merit as it would reduce individual tax compliance costs and ensure
the correct amount of tax is paid.12
There is international precedence for this approach. For example, Estonia
has enabled voluntary reporting from some online platforms, allowing
users to opt in to having data sent to the Tax and Customs Board.13 This
allows for pre-populated tax returns reducing compliance burdens. Gig
workers in Estonia can also open special business bank accounts with
automatic reporting of payments and withholding for income tax, social
tax, and mandatory pension contributions. As a result, freelancers who opt
into this regime do not have to register for the Estonian equivalent of self-
assessment.
Given the potential compliance benefits, both in terms of simplicity and
accuracy, HMRC should actively investigate the feasibility of implementing
an opt-in system based on the Estonian model. In the short term, HMRC
should update guidance and create a checklist of issues that first-time
participants in gig economy work should be aware of, containing links
and cross references to more detailed material. Sharing economy platforms
could then distribute the guides to sellers using their platform. This
approach should be proactive. For example, HMRC should employ people
10 Evidence Submission, Airbnb.
11 Evidence Submission, Low Incomes Tax Reform Group.
12 What is the Construction Industry Scheme (CIS)?, Low Incomes Tax Research Group.
13 Evidence Submission, Sharing Economy UK.
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to scan online discussion forums used by sharing economy workers and
sellers to identify common issues and complications.
Multiple entrepreneurs told us they believed venture capital tax reliefs such
as the Enterprise Investment Scheme and the Seed Enterprise Investment
Scheme “played a huge part in driving the startup ecosystem”. There was
also support for the Enterprise Management Incentive, which offers relief
on startup employee share options. On balance, most entrepreneurs who
responded would not fundamentally change them and most believed
the level of support provided was sufficient. However, in some cases,
rules designed to prevent abuse of the reliefs (e.g. to exclude investments
where the risk to capital was extremely low) inadvertently excluded some
sharing economy startups as asset leasing is an excluded qualifying activity.
This rule is designed to prevent low-risk activities such as leasing ships
from gaining relief designed for innovative and high-risk businesses.
Unfortunately, it poses problems for innovative sharing economy businesses
with a sustainability focus. 14
For instance, Bundlee is the UK’s first baby clothing rental subscription, it
allows parents to rent quality baby clothes and conveniently swap outgrown
clothes for the next size up. This is associated with a significant reduction
in greenhouse gas emissions and resource use. Bundlee’s investors were not
eligible to claim SEIS on their investment as Bundlee was considered to
be an excluded leasing business. As a result, businesses like Bundlee face
significant difficulties in accessing additional financing and attracting staff
by offering equity. By contrast, an e-commerce business that sold the same
clothing would qualify for the reliefs.
A potential solution would be to amend the excluded trades list to only
exclude leasing businesses who are leasing high-value and long-lived assets
such as ships or property. This would allow sharing and circular economy
businesses to access additional capital and test their sustainable option in
the marketplace.
Regulation
By adopting an approach which does not impose any specific additional
regulatory obligations on businesses, the sharing economy has grown
rapidly and flourished in the UK.
It is a myth that the sharing economy is unregulated. In reality, sharing
economy platforms are required to comply with the same laws as offline
businesses. Where regulation has been controversial, it has typically been
a result of the sharing economy making smaller operations more viable
relative to larger regulated operations.
There were, however, concerns about the direction of travel. Multiple
14
Evidence Submission, Eve Kekheh - Bundlee.
“It is a myth that the
sharing economy is
unregulated.”
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entrepreneurs listed uncertainty around the legislation determining
employment status as a key barrier to expansion and investment. For
example, Jack Tang, co-founder of Urban, a beauty and wellness app,
stressed that “extreme caution is necessary to avoid regulation destroying
[the] significant innovation, growth and value that the sharing economy has
created for both buyers and sellers.”15
He emphasises that before the advent of the Gig Economy, there were
already high levels of self-employment in the beauty and wellness industry.
Classifying the freelancers who use apps such as Urban as workers or
employees would generate additional employment obligations and put his
business at an unfair disadvantage.
Similarly, Coadec notes that public market investors have stated uncertainty
about the legislation surrounding employment status as a reason not to
invest in British sharing economy businesses.
Often fears around employment classification were driven by concerns
around taxation. Whilst there are three categories for employment status
(employed, self-employed and worker) - there are only two categories for
taxation (employed and self-employed).
As employees typically face higher taxes than the self-employed, there
were fears that decisions around employment classification could put
online platforms at a significant cost-disadvantage. Avin Rabheru, founder
of Housekeep, argues that the only real solution to prevent companies
deliberately structuring around self-employment was to move to a single
system of tax law independent of employment status.
Paradoxically, uncertainty around employment classification may actually
lead to fewer protections and benefits for workers, and weaker enforcement
of standards for consumers. For example, Jack Tang, founder of on-demand
wellness app Urban, told us it is difficult for platforms to enforce trading
standards and professional conduct in unregulated professions such as
massages or beauty without asserting control and opening their business up
to legal recourse surrounding employment status.
This also applies to benefits for workers and freelancers, for example
Deliveroo founder Will Shu noted in a Times op-ed that “if Deliveroo
unilaterally offer[ed] riders benefits today the consequence would be that
they would likely be reclassified as “workers” by courts and, subsequently,
they would have to operate in fixed shifts exclusively for us.”16
Reclassification to employer models, or receiving legal rulings which led
to shift setting would be an issue as it would undermine the flexibility that
attracts many workers to the sharing economy. For example, almost half
(42%) of 18-24 year olds agree with the statement “If I could make my
15
Evidence Submission, Jack Tang - Urban.
16
Shu, W. (2018). A chance to deliver a new way of working. The Times.
“extreme caution is
necessary to avoid
regulation destroying
[the] significant
innovation, growth and
value that the sharing
economy has created
for both buyers and
sellers.”
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13
current job flexible like a gig economy job I would.”17 Additionally, a survey
of Uber drivers by Public First, chosen as a representative sample of gig
workers, found that they valued flexibility three times more than members
of the general population.18
However, not all platforms believe ‘worker’ classification necessitates a
reduction in flexibility and the imposition of fixed shifts. In response
to a Supreme Court ruling, Uber moved to treat its 70,000 UK drivers
as workers, providing them with holiday pay, a pensions scheme, and a
guarantee of the National Living Wage for time spent driving. Referring
to the judgment, Uber said “it gave the clarity we - and the private hire
industry - needed to move forward to provide drivers with protections
without jeopardising the two way flexibility which drivers consistently tell
us is a priority.”19
In their submission to the APPG for Entrepreneurship’s Call for Evidence,
Uber drew attention to a recommendation from Public First’s Good Work
research into the gig economy.20 The report proposes new legislation to
transform ‘Worker’ status as ‘Flexible Worker’. This new status would apply
to individuals who have the ability to work for multiple companies (multi-
homing), and have complete choice over their hours (i.e. no fixed shifts).
Under this system, Flexible Workers would be treated as self-employed for
tax purposes and would be entitled to the national minimum wage, holiday
pay and pension contributions, in proportion to the time they spend
working through the app. Platforms would be allowed to offer their users
additional benefits such as sick pay, insurance, parental leave, and training,
without being at risk of employment status reclassification.
There was some disagreement over whether legislation over employment
status would be welcome. Some groups such as Coadec believed that
legislation would resolve uncertainty, while others such as Sharing
Economy UK opposed it as they believe it could restrict the flexibility that
many people value rather than increasing clarity.
Startup Ecosystem
There was a general consensus that there was sufficient access to equity
finance for sharing economy entrepreneurs. However, some raised concerns
that investors were overlooking innovative business models in favour of
businesses using buzzwords such as AI and Blockchain compared to a few
years ago.
More pressing were issues around access to talent at all skill levels. The dual
shocks of Brexit and the Covid-19 pandemic have created substantial talent
17
Evidence Submission, Coadec.
18
Good Work – Balancing Flexibility and Fairness in the Gig Economy, Public First.
19
Evidence Submission, Uber.
20
Good Work – Balancing Flexibility and Fairness in the Gig Economy, Public First.
SHARING ECONOMY
14
bottlenecks. 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.” As a result, he has now shifted
half of his workforce overseas.21 Another entrepreneur raised questions
about the lack of clear strategy from the Government on talent and skills.
“There’s a war for talent both at high-skilled (e.g. software engineers)
and low-skilled levels (e.g. tradespeople). This has resulted in huge wage
inflation which will filter through to pricing. The government should be
more explicit about whether this is an intentional or unintentional side
effect of the EU exit.”22
Recent announcements such as the Scale-Up visa, High Potential
Individual visa and Global Business Mobility visa, alongside the new
Skilled Worker visa (replacing the Tier 2 General Visa) should help at
the higher-skilled end, although high visa fees and the associated costs of
sponsorship still act as a barrier for businesses.
The restrictions at lower-skilled levels post-freedom of movement combined
with emigration during the pandemic have created an unexpected
tightening, contributing to short to medium term shortages affecting
platforms.
If shortages continue they risk undermining the government’s wider
objectives of supporting entrepreneurship, attracting investment, and
having more innovative businesses IPO in the UK. In light of this, there
should be a renewed debate over creating new visa routes for workers at
‘lower-skill’ levels.
Conclusion & Recommendations
Ultimately, the health of the ecosystem for sharing economy businesses
will depend upon the tax and regulatory environment. Our historic
approach has given us advantages over EU nations where employment
and tax legislation has been punitive. The sector is now widely used by the
British public and is a key driver of investment into the UK. In the future,
the sector’s growth will depend on sensible regulation and taxation that
maintains and strengthens a level-playing field for all businesses.
With that in mind, we make the following recommendations on taxation,
regulation, and the wider-startup ecosystem:
1. Maintain a level-playing field in taxation between online
and offline businesses. HM Treasury should maintain their
existing treatment of VAT for Sharing Economy businesses
and reject any initiatives that impose a higher VAT burden
21
Evidence Submission, Jack Tang - Urban.
22
Evidence Submission, Avin Rabheru - Housekeep.
“There’s a war for
talent both at high-
skilled (e.g. software
engineers) and low-
skilled levels (e.g.
tradespeople). This
has resulted in huge
wage inflation which
will filter through to
pricing.”
SHARING ECONOMY
15
if a service is booked through an online platform rather than
offline with pen and paper.
2. The Government should develop new fair third-party
reporting requirements for sharing economy platforms.
This should take place at the OECDlevel to avoid
creating excessive burdens and ensure a level-playing field
internationally.
3. The Government should ensure all genuinely innovative
businesses where there is risk to capital can access venture
capital tax breaks such as EIS and SEIS. HM Treasury
should review the asset leasing restriction and create an
exemption for low-value assets to allow sustainability-focused
sharing economy businesses to utilise the schemes.
4. The Government should actively investigate implementing
an Estonian-style tax system for workers in the on-demand
economy. This would allow gig workers to opt-out of the self-
assessment process and instead report their earnings and pay
taxes automatically. In the short-term, specialised online advice
and helplines should be created to improve the process of self-
assessment for sharing economy workers.
5. The Government should not make any changes to
employment status that risk undermining the flexibility
that attracts workers to platforms. They should investigate
solutions such as renaming the category of ‘worker’ to
‘flexible worker’, and clarifying that worker protections are
offered, while maintaining flexibility in work and remaining
self-employed for tax purposes, ahead of the upcoming
Employment Bill.
6. The Government should ensure that high visa fees do not
act as a barrier to startups hiring international talent.
This could be done by waiving all visa fees (including the
immigration health surcharge) for the new scale-up visa.
“the sector’s growth
will depend on sensible
regulation and taxation
that maintains and
strengthens a level-
playing field for all
businesses.”
SHARING ECONOMY
16
ACKNOWLEDGEMENTS
The APPG for Entrepreneurship would like to thank all the entrepreneurs,
researchers, and business groups, which contributed to the APPG for
Entrepreneurship’s Call for Evidence on the Sharing Economy.
– Avin Rabheru, Housekeep
– Jack Tang, Urban
– Eve Kekeh, Bundlee
– Camila de Coverly Veale
– Airbnb
– Sharing Economy UK
– UK Business Forums
– Low Incomes Tax Reform Group
– Uber
About the APPG for Entrepreneurship
The All Party Parliamentary Group for Entrepreneurship was set up to
encourage, support and promote entrepreneurship. It also ensures that
Parliament is kept up-to-date on what is needed to create and sustain the
most favourable conditions for entrepreneurship.
APPGENTREPRENEURSHIP.ORG
APPG for Entrepreneurship
Thomas house
84 Eccleston Square
Pimlico, London
SW1V 1PX
DEC 2021
In partnership with
BRIEFING PAPER
SHARING ECONOMY
SHARING ECONOMY
2
FOREWORD
As a Member of Parliament, I feel responsible for ensuring businesses
thrive and there is capacity for them to invest, resulting in innovation.
Entrepreneurship and innovation are vital to the UK economy, creating or
improving goods and services for consumers, as well as keeping markets
competitive. This report sheds important light on the brilliant work that
we must continue to support businesses in doing as we recover from the
Covid-19 pandemic.
The APPG for Entrepreneurship has brought together a group of cross-
party MPs who are committed to understanding entrepreneurship and
business, informing us about different industries, innovations to improve
business and the challenges faced by businesses. The APPG has continued
to work tirelessly throughout the Covid-19 pandemic to comprehend the
changing landscape businesses have had to adapt to as well as learn about
the brilliant innovations’ businesses have had to make so they can continue
operations.
Sharing Economy platforms have become instrumental to the growth and
success of small businesses in our digitalised economy. 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. Importantly, the sharing
economy serves as an effective method of increasing entrepreneurship by
removing barriers to entry in markets, reducing the number of tasks and
capital expenditures businesses need to make to become viable.
Before becoming a Member of Parliament, I was a small business owner
in the retail sector. I understand the challenges involved with running
a business, including some of the time-consuming tasks that reduce
productivity. The APPG fully supports entrepreneurship and innovation
in this country, which the sharing economy permits. Utilising the sharing
economy enables businesses to not only grow but invest in capital and
hiring new staff, which further grows our national economy.
In my constituency of South West Hertfordshire alone there are nearly
7000 VAT and PAYE registered enterprises with a further 2.7 million
businesses registered in the United Kingdom. I am strongly focused on
helping businesses to build back better after the pandemic, which is why
the work that the APPG Entrepreneurship have done in this report is
so vital. I hope local, small-medium sized enterprises as well as larger
enterprises can utilise the sharing economy to continue to recover and
grow their businesses. This will benefit both the national economy and
consumers, who will enjoy the increased quality and efficiency the sharing
“These apps and
platforms have not
only changed the way
consumers purchase
goods and services but
has also changed how
businesses operate”
GAGAN MOHINDRA MP
Member of Parliament for South
West Hertfordshire
SHARING ECONOMY
3
economy can deliver.
I welcome this APPG for Entrepreneurship report and the hard work that
has been conducted by Sam and his team. The call for evidence collected
data from a variety of sharing economy platforms, highlighting the
diversity of the sharing economy and the wide range of UK businesses that
operate in this space. 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.
The report suggests businesses desire a level-playing field in relation to
taxes compared to offline businesses. The APPG supports the findings
of this report, concluding that a fair and sustainable tax system would
allow businesses on sharing economy platforms to compete, benefiting
consumers. As legislators, work like this provides a vital reference point
to continue to ensure the Government is on the right track to help
entrepreneurs across the country thrive. We will use these recommendations
to inform our decisions, with better knowledge of the practices as well as
challenges that small businesses face.
SHARING ECONOMY
4
EXECUTIVE SUMMARY
– Nearly half of the UK population use sharing economy apps to access
goods and services.
– Over the past decade, venture capitalists have invested £3.47bn in 465
sharing and on-demand economy businesses, according to data provider
Beauhurst.
– The responses to our Call for Evidence highlight the diversity of
businesses in this fast-growing sector – they range from the more
ubiquitous ride-hailing and delivery operators, to services which
connect freelancers to consumers in wellness and household services, to
platforms which promote environmental sustainability by lending baby
clothes.
– In many cases, sharing economy platforms formalise and digitise
existing offline business and employment practices.
Taxation
– There is a broad consensus between sharing economy entrepreneurs
and groups representing or working with them that there should be a
level-playing field on taxation between sharing economy platforms and
traditional offline businesses.
– The reaction from sharing economy entrepreneurs to HM Treasury’s
consultation on applying VAT as standard to all sharing economy
transactions, not merely the transaction fee the platform charges, was
uniformly negative.
– It was believed that applying VAT would put platforms at a significant
disadvantage compared to offline competitors who sold their services
directly to consumers and were under the VAT turnover threshold.
One entrepreneur said the change would ‘essentially kill [their] business
model.” Another argued this could be a net-revenue loser for HMRC
as it could push people away from platforms to the grey ‘cash-in-hand’
economy.
– There was support, however, for increased requirements for platforms to
report the income of sellers on their platform to tax authorities, with the
caveat that any reporting requirements were determined in line with the
OECD process and were consistent globally.
– Concerns were raised around the process of self-assessment. Workers
in the sharing or gig economy are often unfamiliar with the system,
struggle to budget for it correctly, and risk fines for late or incorrect
payments. To address this problem, HMRC should use creative
solutions by trialling initiatives such as a specialist helpline and checklist
SAM DUMITRIU
Research Director, The
Entrepreneurs Network.
SHARING ECONOMY
5
for sharing economy workers.
– The model used by the Estonian authorities was highlighted positively
by multiple respondents. Online platforms work with tax authorities
allowing prepopulation of returns, making it much easier for those
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.
– Multiple entrepreneurs told us they believe the Seed Enterprise
Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS)
have “played a huge part in driving the startup ecosystem” and would
not change them. However, one entrepreneur told us that many sharing
economy businesses are effectively banned from accessing the reliefs as
asset leasing is an excluded qualifying activity. This makes it significantly
harder for sharing economy startups with a sustainability focus to access
capital.
– HM Treasury should consult on revising the definition of asset leasing
to allow sustainability-focused businesses to access venture capital reliefs,
while still excluding non-innovative businesses with low-risk-to-capital
such as ship chartering from access the reliefs.
Regulation
– Most respondents believed the UK’s historic approach to regulating the
sharing economy has been positive. By adopting a light-touch approach
that does not impose additional obligations on digital businesses, the
sector has been able to flourish.
– However, many entrepreneurs were keen to stress that it was a myth
the sector was unregulated and highlighted the many obligations that
platforms and third-parties had to engage with.
– There were concerns that the UK’s regime was being undermined
by uncertainty over future regulation. One entrepreneur suggested
“extreme caution is necessary to avoid [new] regulation destroying [the]
significant innovation, growth and value that the sharing economy has
created for both buyers and sellers.” Additionally, we received reports
that investors believed a lack of clarity over regulation and legislation
was a reason not to invest.
– The key concern for entrepreneurs was around employment
classification. Some were concerned that the increased tax liabilities
from worker status would drive independent workers to the cash-in-
hand economy, where they had fewer protections.
– Others told us that they were reluctant to act on matters of professional
standards and service quality in unregulated trades for fear of incurring
additional tax liabilities.
– There was no clear consensus on whether the employment status of gig
workers should be determined through law. The Coalition for a Digital
SHARING ECONOMY
6
Economy (Coadec) argued that legislation would resolve uncertainty,
while Sharing Economy UK opposed it as they believed it would restrict
the flexibility people value and create additional barriers to the labour
market, rather than increase clarity for businesses and individuals.
Startup Ecosystem
– The UK’s startup ecosystem is generally favorable to sharing economy
entrepreneurs with high levels of access to capital.
– However, access to talent is an issue at both the high-and low-skilled
level. This is likely to have been exacerbated by the UK’s exit from the
European Union and the pandemic.
– In some cases, this has led startups to move part of their operations
overseas, with obvious knock-on impacts to the UK economy, and
working against the Government’s ambition to grow more start-ups to
IPO in the UK.
Recommendations
– Maintain a level-playing field in taxation between online and offline
businesses by rejecting any initiatives that impose a higher VAT burden
if a service is booked through an online platform rather than offline
with pen and paper.
– The Government should work with the OECD to develop new fair
third-party reporting requirements for sharing economy platforms.
– The Government should ensure all genuinely innovative businesses
where there is risk to capital can access venture capital tax breaks such as
EIS and SEIS by reforming asset leasing rules.
– The Government should actively investigate implementing an Estonian-
style tax system for workers in the on-demand economy.
– The Government should not make any changes to employment status
that risk undermining the flexibility that attracts workers to platforms.
– The Government should ensure that high visa fees do not act as a barrier
to startups hiring international talent.
SHARING ECONOMY
7
INTRODUCTION
In his book, Tomorrow 3.0: Transaction Costs and The Sharing Economy,
economist Michael Munger makes the observation:1
“Right now, we own stuff. I do, you do, the people across the street
who can’t get their car in the garage do . . . we own a ton of stuff.
But people don’t fundamentally want stuff. What they want is the
stream of services that stuff provides over time. So if people own
stuff—clothes, tools, cars, houses—rather than rent that stuff,
it is because owning secures services more reliably and at lower
transaction costs than renting.”
What makes the sharing economy revolutionary is the way digital platforms
have enabled us to access the benefits of owning “stuff” without actually
owning anything. This has unlocked a myriad of benefits, from saving
consumers money (e.g. why pay to own power tools when you only use
them once a year), expanded choice, and less impact on the environment.
It also doesn’t just apply to stuff, but work too. It has allowed more people
to enjoy the flexibility and freedom of earning independently, without
the hassle of networking, negotiating, or renting premises. There are
productivity benefits too, by better matching buyers and sellers, workers
are able to earn more by doing more jobs in the same amount of time and
spend less time waiting around.
The APPG for Entrepreneurship’s call for evidence and roundtable
discussion on the sharing economy highlights the sector’s diversity and its
potential to transform almost every industry. Respondents to the APPG’s
Call for Evidence span sectors from beauty and wellbeing to travel and
tourism, and almost everything in between. We even encountered a
sustainability-focused startup which allowed parents to share baby clothes.
The Sharing Economy has been a key growth pillar for the UK economy.
Over the past decade, venture capitalists have invested £3.47bn in 465
sharing and on-demand economy businesses, according to data provider
Beauhurst.2 Polling conducted by Public First, on behalf of startup industry
group Coadec , found that almost half of the British public use sharing
economy apps to access goods and services.3
Sharing economy businesses, which for the purposes of this research will
1 Munger, M. C. (2018). Tomorrow 3.0: Transaction costs and the sharing economy.
Cambridge University Press.
2 Beauhurst, authors’ analysis.
3 Submission, Coadec.
“Over the past decade,
venture capitalists
have invested £3.47bn
in 465 sharing and
on-demand economy
businesses.”
SHARING ECONOMY
8
be defined broadly to include on-demand and gig economy businesses
such as Uber, Deliveroo, and Fiverr, digitise and formalise existing offline
business practices. For example, one submission to the APPG’s Call for
Evidence pointed out that in the beauty industry workers are traditionally
self-employed and many salons operate on a seat-rental model where
practitioners rent a space or agree to a form of profit sharing.4 Sharing
economy apps build upon these pre-existing business models, using
matching algorithms and network effects to match buyers with sellers
of goods or services. In many cases, bookings made before the advent of
sharing economy apps would be processed via pen-and-paper. It is clear
to understand the benefit of this digitisation for the Exchequer, as fewer
businesses rely on traditional admin and cash in hand payments, which are
harder for HMRC to track and tax correctly.
Although the sector has grown rapidly in the UK - and offers clear benefits
for the Treasury, consumers and for access to earnings opportunities -
sharing economy entrepreneurs are expressing concerns about the direction
of policy. In particular, changes to tax and regulatory policy could have a
significant impact on investment in the sector.
This APPG for Entrepreneurship report sets out the key issues that
entrepreneurs in the sharing economy are concerned about. It advocates
for a continued level-playing field on tax and for preserving the regulatory
environment that has allowed the sector to flourish, while also empowering
platforms to prioritise standards.
Taxation
In the responses to our Call for Evidence, there was a broad consensus
between sharing economy entrepreneurs and groups that represent or work
with them that there should be a level-playing field on taxation between
sharing economy platforms and their offline competitors.
There was a general agreement that, outside of a few exceptions, the status
quo was broadly fair. This is significant because HM Treasury recently
consulted on major changes to the way VAT is applied to sharing economy
platforms.5
Under the current system, online platforms are required to pay VAT on
their transaction fee, while people providing a service on the platform
(e.g. a minicab driver, host, or cleaner) pay VAT on the remainder of the
transaction. As self-employed workers often have trading incomes below
the £85,000 VAT registration threshold, this will leave the majority of the
transaction untaxed.
HM Treasury’s consultation on VAT was a response to concerns that the
rise of the sharing economy is narrowing the tax base. In theory, this would
4 Evidence Submission, Jack Tang - Urban.
5 VAT and the Sharing Economy: Summary of Responses, HM Treasury.
SHARING ECONOMY
9
be possible if a freelancer was previously providing the same service as an
employee of a company above the VAT registration threshold. However,
in many cases sharing economy platforms engage freelancers or sellers who
would not otherwise be above the VAT registration threshold of £85,000.
For example, a cleaner or childcare professional who uses an app to arrange
their services is typically in competition with offline businesses who are
also below the VAT registration threshold. Changing the status quo would
result in an unlevel playing field for Sharing Economy businesses.
Multiple entrepreneurs who responded to our consultation believed
that applying VAT to the entire transaction would also put them at a
competitive disadvantage to their primary competitors, who would still be
below the registration threshold for VAT.6
Although consumers use sharing economy apps for multiple reasons,
including choice and convenience, price is a major factor. Polling
commissioned by Coadec found that 39% of consumers agreed “If Gig
Economy apps were more expensive than the alternative, I would stop
using them”, while just 9% disagreed.7
One entrepreneur told us the change would “essentially kill our business
model”, while another said costs would “be passed onto the consumers
and practitioners. This would destroy the value of our platform and all
the benefits and opportunities created.”8 There is also a risk that this move
could push trade towards the grey or cash-in-hand economy, which could
have negative revenue implications by increasing opportunities for evasion.
The Institute for Fiscal Studies’ Stuart Adam argues that tax should aim to
be neutral across different legal and commercial arrangements. Ultimately,
he argues, questions such as ‘Is the worker employed or self-employed?’ or
‘Is the platform providing the service to the customer, or merely connecting
the customer to the service provider?’ should be irrelevant to tax. In the
long run, the only way to make this possible would be to reduce the tax
incentives for businesses to fragment (e.g. by outsourcing employee roles to
external contractors).9 This would involve aligning business and individual
tax rates, as well as reducing the VAT threshold. In practice, this would be
politically difficult and in the absence of structural reform, ad hoc changes
targeting innovative business models are ill-advised.
At the most recent Budget, it was announced that HM Treasury would
consult on the arguments for and against implementing an Online Sales
Tax. Any revenue raised from the tax under consideration would be
used to reduce Business Rates. A key difficulty for any Online Sales Tax
would be limiting its impact on independent and freelance users of online
platforms. Past attempts to tax online platforms such as the Digital Services
6 Evidence Submission, Avin Rabheru - Housekeep.
7 Evidence Submission, Coadec.
8 Evidence Submission, Avin Rabheru - Housekeep and Jack Tang - Urban.
9 Stuart Adam (2020). “How should platforms and gig economy workers be taxed?”
Institute for Fiscal Studies.
“Changing the status
quo would result in an
unlevel playing field
for Sharing Economy
businesses.”
SHARING ECONOMY
10
Tax have been passed on to SMEs and consumers. Additionally, many
of the arguments against unilaterally applying VAT to sharing economy
transactions apply equally to proposals to levy an Online Sales Tax.
There was, however, support for increased requirements for platforms to
report sellers’ income to tax authorities in order to prevent tax evasion.
However, as many sharing economy businesses trade in multiple markets,
any new requirements should be developed at the OECD level.10
Greater cooperation between tax authorities and sharing economy
platforms could also have benefits for the self-employed. One respondent,
the Low Incomes Tax Reform Group (LITRG), noted the sharing economy
has led to a rise in the number of individuals who are required to file self-
assessment tax returns. Individuals who have traditionally paid their taxes
through withholding (PAYE) are often unfamiliar with the system.11 As a
result, they can struggle to budget for tax payments, not seek independent
professional advice, and in some cases, fail to register at all.This can lead to
penalties for late payment.
In their submission, LITRG drew attention to the Construction Industry
Scheme where invoiced payments made to self-employed construction
workers are withheld at a rate of either 20% or 30%. The withheld
payments are sent to HMRC as an advance for the worker. A similar
scheme targeted at the freelancers in the gig and sharing economies would
have merit as it would reduce individual tax compliance costs and ensure
the correct amount of tax is paid.12
There is international precedence for this approach. For example, Estonia
has enabled voluntary reporting from some online platforms, allowing
users to opt in to having data sent to the Tax and Customs Board.13 This
allows for pre-populated tax returns reducing compliance burdens. Gig
workers in Estonia can also open special business bank accounts with
automatic reporting of payments and withholding for income tax, social
tax, and mandatory pension contributions. As a result, freelancers who opt
into this regime do not have to register for the Estonian equivalent of self-
assessment.
Given the potential compliance benefits, both in terms of simplicity and
accuracy, HMRC should actively investigate the feasibility of implementing
an opt-in system based on the Estonian model. In the short term, HMRC
should update guidance and create a checklist of issues that first-time
participants in gig economy work should be aware of, containing links
and cross references to more detailed material. Sharing economy platforms
could then distribute the guides to sellers using their platform. This
approach should be proactive. For example, HMRC should employ people
10 Evidence Submission, Airbnb.
11 Evidence Submission, Low Incomes Tax Reform Group.
12 What is the Construction Industry Scheme (CIS)?, Low Incomes Tax Research Group.
13 Evidence Submission, Sharing Economy UK.
SHARING ECONOMY
11
to scan online discussion forums used by sharing economy workers and
sellers to identify common issues and complications.
Multiple entrepreneurs told us they believed venture capital tax reliefs such
as the Enterprise Investment Scheme and the Seed Enterprise Investment
Scheme “played a huge part in driving the startup ecosystem”. There was
also support for the Enterprise Management Incentive, which offers relief
on startup employee share options. On balance, most entrepreneurs who
responded would not fundamentally change them and most believed
the level of support provided was sufficient. However, in some cases,
rules designed to prevent abuse of the reliefs (e.g. to exclude investments
where the risk to capital was extremely low) inadvertently excluded some
sharing economy startups as asset leasing is an excluded qualifying activity.
This rule is designed to prevent low-risk activities such as leasing ships
from gaining relief designed for innovative and high-risk businesses.
Unfortunately, it poses problems for innovative sharing economy businesses
with a sustainability focus. 14
For instance, Bundlee is the UK’s first baby clothing rental subscription, it
allows parents to rent quality baby clothes and conveniently swap outgrown
clothes for the next size up. This is associated with a significant reduction
in greenhouse gas emissions and resource use. Bundlee’s investors were not
eligible to claim SEIS on their investment as Bundlee was considered to
be an excluded leasing business. As a result, businesses like Bundlee face
significant difficulties in accessing additional financing and attracting staff
by offering equity. By contrast, an e-commerce business that sold the same
clothing would qualify for the reliefs.
A potential solution would be to amend the excluded trades list to only
exclude leasing businesses who are leasing high-value and long-lived assets
such as ships or property. This would allow sharing and circular economy
businesses to access additional capital and test their sustainable option in
the marketplace.
Regulation
By adopting an approach which does not impose any specific additional
regulatory obligations on businesses, the sharing economy has grown
rapidly and flourished in the UK.
It is a myth that the sharing economy is unregulated. In reality, sharing
economy platforms are required to comply with the same laws as offline
businesses. Where regulation has been controversial, it has typically been
a result of the sharing economy making smaller operations more viable
relative to larger regulated operations.
There were, however, concerns about the direction of travel. Multiple
14
Evidence Submission, Eve Kekheh - Bundlee.
“It is a myth that the
sharing economy is
unregulated.”
SHARING ECONOMY
12
entrepreneurs listed uncertainty around the legislation determining
employment status as a key barrier to expansion and investment. For
example, Jack Tang, co-founder of Urban, a beauty and wellness app,
stressed that “extreme caution is necessary to avoid regulation destroying
[the] significant innovation, growth and value that the sharing economy has
created for both buyers and sellers.”15
He emphasises that before the advent of the Gig Economy, there were
already high levels of self-employment in the beauty and wellness industry.
Classifying the freelancers who use apps such as Urban as workers or
employees would generate additional employment obligations and put his
business at an unfair disadvantage.
Similarly, Coadec notes that public market investors have stated uncertainty
about the legislation surrounding employment status as a reason not to
invest in British sharing economy businesses.
Often fears around employment classification were driven by concerns
around taxation. Whilst there are three categories for employment status
(employed, self-employed and worker) - there are only two categories for
taxation (employed and self-employed).
As employees typically face higher taxes than the self-employed, there
were fears that decisions around employment classification could put
online platforms at a significant cost-disadvantage. Avin Rabheru, founder
of Housekeep, argues that the only real solution to prevent companies
deliberately structuring around self-employment was to move to a single
system of tax law independent of employment status.
Paradoxically, uncertainty around employment classification may actually
lead to fewer protections and benefits for workers, and weaker enforcement
of standards for consumers. For example, Jack Tang, founder of on-demand
wellness app Urban, told us it is difficult for platforms to enforce trading
standards and professional conduct in unregulated professions such as
massages or beauty without asserting control and opening their business up
to legal recourse surrounding employment status.
This also applies to benefits for workers and freelancers, for example
Deliveroo founder Will Shu noted in a Times op-ed that “if Deliveroo
unilaterally offer[ed] riders benefits today the consequence would be that
they would likely be reclassified as “workers” by courts and, subsequently,
they would have to operate in fixed shifts exclusively for us.”16
Reclassification to employer models, or receiving legal rulings which led
to shift setting would be an issue as it would undermine the flexibility that
attracts many workers to the sharing economy. For example, almost half
(42%) of 18-24 year olds agree with the statement “If I could make my
15
Evidence Submission, Jack Tang - Urban.
16
Shu, W. (2018). A chance to deliver a new way of working. The Times.
“extreme caution is
necessary to avoid
regulation destroying
[the] significant
innovation, growth and
value that the sharing
economy has created
for both buyers and
sellers.”
SHARING ECONOMY
13
current job flexible like a gig economy job I would.”17 Additionally, a survey
of Uber drivers by Public First, chosen as a representative sample of gig
workers, found that they valued flexibility three times more than members
of the general population.18
However, not all platforms believe ‘worker’ classification necessitates a
reduction in flexibility and the imposition of fixed shifts. In response
to a Supreme Court ruling, Uber moved to treat its 70,000 UK drivers
as workers, providing them with holiday pay, a pensions scheme, and a
guarantee of the National Living Wage for time spent driving. Referring
to the judgment, Uber said “it gave the clarity we - and the private hire
industry - needed to move forward to provide drivers with protections
without jeopardising the two way flexibility which drivers consistently tell
us is a priority.”19
In their submission to the APPG for Entrepreneurship’s Call for Evidence,
Uber drew attention to a recommendation from Public First’s Good Work
research into the gig economy.20 The report proposes new legislation to
transform ‘Worker’ status as ‘Flexible Worker’. This new status would apply
to individuals who have the ability to work for multiple companies (multi-
homing), and have complete choice over their hours (i.e. no fixed shifts).
Under this system, Flexible Workers would be treated as self-employed for
tax purposes and would be entitled to the national minimum wage, holiday
pay and pension contributions, in proportion to the time they spend
working through the app. Platforms would be allowed to offer their users
additional benefits such as sick pay, insurance, parental leave, and training,
without being at risk of employment status reclassification.
There was some disagreement over whether legislation over employment
status would be welcome. Some groups such as Coadec believed that
legislation would resolve uncertainty, while others such as Sharing
Economy UK opposed it as they believe it could restrict the flexibility that
many people value rather than increasing clarity.
Startup Ecosystem
There was a general consensus that there was sufficient access to equity
finance for sharing economy entrepreneurs. However, some raised concerns
that investors were overlooking innovative business models in favour of
businesses using buzzwords such as AI and Blockchain compared to a few
years ago.
More pressing were issues around access to talent at all skill levels. The dual
shocks of Brexit and the Covid-19 pandemic have created substantial talent
17
Evidence Submission, Coadec.
18
Good Work – Balancing Flexibility and Fairness in the Gig Economy, Public First.
19
Evidence Submission, Uber.
20
Good Work – Balancing Flexibility and Fairness in the Gig Economy, Public First.
SHARING ECONOMY
14
bottlenecks. 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.” As a result, he has now shifted
half of his workforce overseas.21 Another entrepreneur raised questions
about the lack of clear strategy from the Government on talent and skills.
“There’s a war for talent both at high-skilled (e.g. software engineers)
and low-skilled levels (e.g. tradespeople). This has resulted in huge wage
inflation which will filter through to pricing. The government should be
more explicit about whether this is an intentional or unintentional side
effect of the EU exit.”22
Recent announcements such as the Scale-Up visa, High Potential
Individual visa and Global Business Mobility visa, alongside the new
Skilled Worker visa (replacing the Tier 2 General Visa) should help at
the higher-skilled end, although high visa fees and the associated costs of
sponsorship still act as a barrier for businesses.
The restrictions at lower-skilled levels post-freedom of movement combined
with emigration during the pandemic have created an unexpected
tightening, contributing to short to medium term shortages affecting
platforms.
If shortages continue they risk undermining the government’s wider
objectives of supporting entrepreneurship, attracting investment, and
having more innovative businesses IPO in the UK. In light of this, there
should be a renewed debate over creating new visa routes for workers at
‘lower-skill’ levels.
Conclusion & Recommendations
Ultimately, the health of the ecosystem for sharing economy businesses
will depend upon the tax and regulatory environment. Our historic
approach has given us advantages over EU nations where employment
and tax legislation has been punitive. The sector is now widely used by the
British public and is a key driver of investment into the UK. In the future,
the sector’s growth will depend on sensible regulation and taxation that
maintains and strengthens a level-playing field for all businesses.
With that in mind, we make the following recommendations on taxation,
regulation, and the wider-startup ecosystem:
1. Maintain a level-playing field in taxation between online
and offline businesses. HM Treasury should maintain their
existing treatment of VAT for Sharing Economy businesses
and reject any initiatives that impose a higher VAT burden
21
Evidence Submission, Jack Tang - Urban.
22
Evidence Submission, Avin Rabheru - Housekeep.
“There’s a war for
talent both at high-
skilled (e.g. software
engineers) and low-
skilled levels (e.g.
tradespeople). This
has resulted in huge
wage inflation which
will filter through to
pricing.”
SHARING ECONOMY
15
if a service is booked through an online platform rather than
offline with pen and paper.
2. The Government should develop new fair third-party
reporting requirements for sharing economy platforms.
This should take place at the OECDlevel to avoid
creating excessive burdens and ensure a level-playing field
internationally.
3. The Government should ensure all genuinely innovative
businesses where there is risk to capital can access venture
capital tax breaks such as EIS and SEIS. HM Treasury
should review the asset leasing restriction and create an
exemption for low-value assets to allow sustainability-focused
sharing economy businesses to utilise the schemes.
4. The Government should actively investigate implementing
an Estonian-style tax system for workers in the on-demand
economy. This would allow gig workers to opt-out of the self-
assessment process and instead report their earnings and pay
taxes automatically. In the short-term, specialised online advice
and helplines should be created to improve the process of self-
assessment for sharing economy workers.
5. The Government should not make any changes to
employment status that risk undermining the flexibility
that attracts workers to platforms. They should investigate
solutions such as renaming the category of ‘worker’ to
‘flexible worker’, and clarifying that worker protections are
offered, while maintaining flexibility in work and remaining
self-employed for tax purposes, ahead of the upcoming
Employment Bill.
6. The Government should ensure that high visa fees do not
act as a barrier to startups hiring international talent.
This could be done by waiving all visa fees (including the
immigration health surcharge) for the new scale-up visa.
“the sector’s growth
will depend on sensible
regulation and taxation
that maintains and
strengthens a level-
playing field for all
businesses.”
SHARING ECONOMY
16
ACKNOWLEDGEMENTS
The APPG for Entrepreneurship would like to thank all the entrepreneurs,
researchers, and business groups, which contributed to the APPG for
Entrepreneurship’s Call for Evidence on the Sharing Economy.
– Avin Rabheru, Housekeep
– Jack Tang, Urban
– Eve Kekeh, Bundlee
– Camila de Coverly Veale
– Airbnb
– Sharing Economy UK
– UK Business Forums
– Low Incomes Tax Reform Group
– Uber
About the APPG for Entrepreneurship
The All Party Parliamentary Group for Entrepreneurship was set up to
encourage, support and promote entrepreneurship. It also ensures that
Parliament is kept up-to-date on what is needed to create and sustain the
most favourable conditions for entrepreneurship.
APPGENTREPRENEURSHIP.ORG
APPG for Entrepreneurship
Thomas house
84 Eccleston Square
Pimlico, London
SW1V 1PX