Gig work - what to do if you are behind on your taxes

Introduction

We know that some of those in the gig economy may be behind with their taxes for all sorts of reasons.

It is likely you will be in one of two situations if you are behind with your taxes:

1. You have registered for self assessment but have fallen behind with completing and submitting the tax returns HMRC have asked you to file (see the heading Late filing below)
2. You have not yet registered as self-employed with HMRC and so have not been asked to complete any tax returns (see the heading Failure to notify below)

Late filing

Once you are registered for self assessment with HMRC, in April every year you should receive a notice from HMRC telling you to file (or submit) a tax return for the tax year just ended.

The online filing deadline for a tax return will usually be 31 January after the end of the tax year. So, a tax return for the 2023/24 tax year is due for submission by 31 January 2025. Penalties are automatically applied if you have been sent a notice to file a tax return but you do not meet the deadline. The penalties can be quite harsh and are applied even if you have no tax or National Insurance contributions (NIC) to pay for the tax year to which the penalty relates.

If you have received a penalty notice from HMRC for not filing a tax return – do not ignore it. The amount of penalty will increase if you do not sort this out with HMRC. It may be the case that you can and want to appeal the penalty, in which case there are time limits to do so, although HMRC may accept late appeals which are outside the specified time limits, particularly if you have a reasonable excuse for not dealing with matters in a timely manner. For more information, see our Appealing a tax decision page.

If you have a reasonable excuse for not filing your tax return, this can be grounds for an appeal against the penalties. A reasonable excuse might include where you did not understand the system and needed help from, for example, TaxAid or from HMRC. In this case, you are usually expected to have taken reasonable steps to get help with your tax affairs. How difficult your tax affairs are and why, in your particular circumstances, you have found them too difficult to deal with, will also be relevant when explaining why you think you have a reasonable excuse.

If you did not file your tax return because you did not consider it was required (for example, because you are no longer self-employed), then you need to let HMRC know. HMRC may be able to withdraw the tax return, and if they do that, you will no longer need to file it and any late filing penalties will be set aside.

If you did need to submit the tax return but you are unable to do so and cannot afford tax advice, then you should contact the tax charity TaxAid (see the guidance under the heading TaxAid below) to see if they can help you get your tax affairs in order.

Remember, not everyone who is self-employed needs to send HMRC a tax return. This might include where you are self-employed but your total income from gig work does not exceed £1,000 and you have no other trading or miscellaneous income. In this situation your entitlement to the trading allowance  means there is no tax to pay and nothing to report to HMRC. But you must keep track of your income to make sure it is £1,000 or below. If your income is more than £1,000 you can still benefit from the trading allowance. See our Trading allowance page for more details.

Failure to notify

This could apply to the situation where you have not yet registered as self-employed with HMRC but have been working on a self-employed basis.

There are penalties for failing to notify HMRC of a liability to tax by 5 October following the end of the tax year in which liability arose. So, if you owe tax on a new source of self-employment income which began in the 2023/24 tax year, but did not tell HMRC about it by 5 October 2024, you have failed to notify HMRC.

These penalties are based on the tax (and Class 2 and 4 NIC) that could potentially be lost because of the failure to notify on time (‘potential lost revenue’). We explain how ‘failure to notify’ penalties are calculated on our Tax penalties and interest page.

Although these sound scary – don’t panic. They will not necessarily be relevant. Even if you do need to do a tax return, you might not need to do one yet. We cover how and when to register in detail on our page Self-employment: registering for tax and NIC and we explain what happens if you miss the filing deadline (5 October after the end of the tax year) in the deadlines section of our Registering for self assessment page.

Even if the penalties are relevant, ask yourself if you have a ‘reasonable excuse’ for having not done what you should have. If circumstances stopped you meeting your obligations, then you may have one and you can and should appeal the penalty. If you have not filed any tax returns when you should have done, then you should seek advice on the best way to bring your tax affairs up to date as soon as possible. This may not be as hard as you think, as we explain under the heading TaxAid below.

Concern about tax payments

Bringing your tax affairs up to date by filing tax returns for past years does not necessarily mean you will have a large tax bill to pay, as it depends on the amount of profit you make from your work.

There are a number of reasons why you may not be able to pay HMRC what you owe (including getting caught out by payments on account). The situation may not be as bad as you think if you have problems paying what is due but you should act quickly, for example by calling HMRC and explaining your circumstances or asking TaxAid to help you (for more information see the heading TaxAid below). See our detailed guidance on what to do if you can’t pay your tax bill on our page Tax payment problems and debt.

So do not delay filing outstanding tax returns if you don’t think you can pay the tax bill that could be due. This is only likely to make matters worse.

Tax returns for prior years

HMRC can ask you to pay back-taxes for a limited number of years, depending on the circumstances. You have to self-assess your behaviour to work out the number of years that apply to you (this will also help you to work out any penalty you have to pay if there are some taxes that you owe to HMRC).

So, for example, if you completed a self assessment tax return, but did not include the gig economy income in it, the rules are basically as follows:

• If you took care to make sure your tax return was correct but still didn’t pay enough tax, HMRC have 4 years from the end of the tax year concerned to require back taxes to be paid.
• If you did not pay enough tax because you were careless, the time limit is 6 years.
• If you deliberately misled HMRC about this income, HMRC can ask for this tax for tax years going back up to 20 years.

There are similar rules if you failed to notify HMRC of the need to complete a tax return to declare your gig economy income in the first place. You can find a useful table summarising HMRC’s assessing time limits in HMRC’s Compliance Manual on GOV.UK. You can also find information about the various behaviours, such as carelessness, in the manual. If you are in any doubt as to which category your behaviour best fits, you should seek some professional advice (we explain how to do this under the heading TaxAid below).

HMRC letters

You should be aware that HMRC receive information from third parties about income that people receive from selling goods or services. This can be used to identify people who need to bring their tax affairs up to date. HMRC have written to a number of people who have received some income from online platforms such as Amazon, eBay, Etsy and Wayfair, who they think may need to take action. The letters also may include a certificate of tax position, which HMRC ask the individuals to complete and return to them.

These letters are different to the information that digital platforms need to provide to HMRC from 1 January 2024, we explain more about these new reporting requirements on our OECD rules page.

The sections below cover what you should do if you have received a letter from HMRC asking about income you have earned from online websites and apps. You should consider getting some professional advice if you think you have some additional income you should have told HMRC about. 

What to do

Do not ignore the letter.

You should respond to HMRC by the date stated on the letter (usually within 30 days of the date HMRC issued the letter), even if you do not have any income to tell them about.

HMRC have information that shows you may have earned money from selling goods and/or services through an online marketplace. They have obtained information from third parties and carried out risk assessments. The information and risk assessment show you may not have told HMRC about all of your income.

This means that your tax position may be wrong or that you may not have paid enough tax.

If you have filed tax returns

You should check your previous tax returns to ensure that they are complete and correct to the best of your knowledge and belief. In particular, you should check that you have included all the income you have earned from trading through online marketplaces and deducted all the allowable expenses you have incurred.

You might be able to make use of the £1,000 trading allowance if your gross income from trading through online marketplaces is £1,000 or less. This will depend on whether you have any other sources of self-employment, casual or miscellaneous income.

Note that you should include details of all your taxable income on your tax return. So, if you have other sources of income (such as employment income, for example), check that you have also included these.

If you have not filed tax returns

You should check that you do not need to tell HMRC about the money you have made through an online marketplace. You can look at our gig economy guidance, the news articles at the end of this webpage and use HMRC’s online tool.

You might be able to make use of the £1,000 trading allowance if your gross income from trading through online marketplaces is £1,000 or less. This will depend on whether you have any other sources of self-employment, casual or miscellaneous income.

If you need to tell HMRC about income

If you need to tell HMRC about income that you have not disclosed to them, the letter should tell you to use the online Digital Disclosure Facility or Disclosure Service to do this.

You need a government gateway user ID and password to use the digital disclosure facility. If you do not already have a user ID, you need to create one. You can do this by registering for HMRC online services.

The letter from HMRC should provide instructions on how to make a voluntary disclosure. After you have made a disclosure HMRC will send you an acknowledgement letter. This will tell you your disclosure reference number (DRN) and your payment reference number (PRN).

You should use the DRN whenever you contact HMRC about your voluntary disclosure.

You should use the PRN when you pay any tax that you owe in relation to your voluntary disclosure.

If you do not need to tell HMRC about income

If you check your tax returns and you are confident you do not have any income that you have not already told HMRC about, you should contact HMRC to let them know. You can either complete the certificate of tax position (see comments on this below), write a letter or telephone HMRC. Whichever method you choose, you must confirm that you do not need to make a disclosure and explain why.

If you do not respond to HMRC’s letter they are likely to follow up. They will probably send you another letter in the first instance. If you fail to respond, HMRC may decide to open a compliance check into your tax return if you have submitted one. If you have not completed a tax return, they could issue a notice to file a tax return or issue an assessment.

Certificate of tax position

There is no legal obligation on you to complete and return the enclosed certificate of tax position. However, as noted above, you do need to respond to the letter from HMRC.

You may prefer to respond to HMRC by letter, particularly if your tax affairs are not straightforward. HMRC have confirmed that they will accept a response by letter or confirmation over the telephone as an alternative, if you choose not to complete and sign the certificate of tax position. If you complete and sign the certificate of tax position, and in doing so make a false declaration, HMRC can prosecute you. So, you should take extra care when completing the certificate of tax position and consider taking professional advice.

Next steps

If you respond to HMRC confirming that you do have undeclared income, you will have 90 days from the date of HMRC’s acknowledgement letter to work out and pay any tax that you owe. You can use the digital disclosure facility to work out and pay the tax.

Penalties and interest

If you have to tell HMRC about income in response to their letter, they will treat your disclosure as a prompted disclosure. You may have to pay a penalty unless you can show that you had a reasonable excuse for not telling HMRC about the income, or that you made a genuine mistake (you did not tell HMRC about the income but took reasonable care to try to get your tax right).

HMRC charge interest on tax that you pay late. So, you will probably have to pay interest on any tax that you pay as a result of making a disclosure.

You can work out (‘self assess’) the penalties and interest you have to pay using the digital disclosure facility. The facility has calculators to help you with this.

If you cannot afford the tax

If you owe tax but cannot afford to pay it all in one payment, contact HMRC. You can ask HMRC about setting up a time to pay arrangement. If HMRC agree to offer you a time to pay arrangement, this will spread the payments of tax that you owe over several months.

Further help

There is HMRC guidance about how to make a voluntary disclosure on GOV.UK.

If you are unsure of your tax position, you should seek independent advice. If you can afford to pay a professional tax adviser, you can find more information on how to find one on our page Help with tax from friends, family, professionals or other organisations.

If you are on a low income and cannot afford to pay for a professional tax adviser, you should contact the tax charity TaxAid (for more information see the heading below, TaxAid), who may be able to assist you.

If your health or personal circumstances mean that you find it difficult to deal with your tax position, you may be able to get additional help from HMRC’s Extra Support Team.

TaxAid

If you are on a low income, the tax charity TaxAid are familiar with cases such as sorting out the tax position for people behind with their taxes and can offer free, independent advice and assistance on the matter.

This can include talking to HMRC on your behalf and helping you to:

• work out whether you needed to file a tax return in the first place for any particular year,
• support you to register for a tax return if you need to and have not already,
• help you understand what income and expenses to declare,
• complete any outstanding tax returns,
• decide on the best course of action to take to deal with any old tax years (for instance, by simply writing a letter or using the disclosure facility),
• appeal against any penalties charged by HMRC if you had a reasonable excuse for not having done something that you should have done, and
• understand how to negotiate ‘Time to pay’ arrangements taking account of your individual health and financial circumstances if you have a tax payment which you cannot afford to pay.

A case study looking at TaxAid’s help in practice can be found on their website.

Claiming benefits

Some gig workers, especially those delivering goods or takeaways may be struggling to earn enough money due to a drop in demand at the same time as an oversupply of workers. If options for other work are limited, benefits can be a lifeline.

But what if you are behind on your taxes and haven’t paid any National Insurance (NIC)? Does this mean you can’t claim benefits? The good news is that although you will need to sort out your taxes in the longer term, if your work has reduced or stopped, you might still be able to claim some welfare support from the benefits system.

Types of benefit

There are two main types of benefit (as explained by Turn2Us), these are means tested and non-means tested.

Some non-means tested benefits are ‘contributory’ benefits, that is benefits which are only payable if a person has paid enough NIC. Therefore, if your tax affairs are not up to date, you may not have paid enough NICs to receive contributory benefits.

However, means tested benefits don't rely on whether you have paid any NIC. Instead, they usually look at how much income you have, any savings you have and calculate whether you are entitled to welfare support either in full or to top up your income to a certain level. They may also take into account your partner's circumstances if you are part of a couple. You can get means-tested benefits by themselves or sometimes as a top-up to contribution-based benefits.

The main means tested benefit you may be able to claim if you are no longer working and are struggling to find work is universal credit (UC). For those who have reached their state pension qualifying age, it is pension credit, as explained on GOV.UK.

The Department for Work and Pensions (DWP) pays UC, and your claim is based on your current circumstances such as what support you need now, rather than what may have happened in the past, although the DWP may ask you about previous earnings to help them decide whether the benefit cap applies. There are some benefit calculators online that can give you a rough idea of how much you may be entitled to but the best way to check is to speak to a welfare rights adviser, as explained under the heading More information below.

Claims for UC are usually made online and you will need to prove your identity to make the claim, but there are lots of ways you can do this. You might need to explain what has been happening with your income when you are contacted by the DWP about your claim to the extent it is relevant to your work capability, claimant commitment and so on.

More information

The benefits system is complicated. This page is intended to give you some basic information, but we always advise you to speak to a welfare rights adviser who can provide information on  what you might be able to claim based on your exact circumstances. Our Help with tax from friends, family, professionals or other organisations page gives details of organisations which can help with welfare rights advice, such as Citizens Advice and Advicelocal.

You can use one of the following online calculators to get an idea about what benefits you may be entitled to:

• Entitledto
• Turn2Us
• Policy in Practice

There is also some good information about rent arrears and UC from Citizens Advice.