The stark warning to the taxman is that the share of lost tax as a result of the hidden economy could escalate due to the ad hoc nature of employment going forward.

The OTS has published a focus paper on the nature of the gig economy, where organisations and independent workers contract for short-term engagements, and the sharing economy whereby money is generated by sharing or renting out assets. Both options usually involve the use of an IT platform to facilitate connections.

The paper points out that the income accrued by the gig worker is taxable, but is not clear how HMRC can collect it simply and efficiently, partly because of the issue that some individuals may be employed and paying tax under PAYE and others may be self employed.

The OTS says the situation is further complicated by various allowances.  It highlights that in Budget 2016, the Chancellor announced the introduction of £1,000 ‘sharing allowances’, one for property income (for example through AirBnb and similar room rental propositions) and a second to cover trading income. Interest income may also be relevant for peer-to-peer lending sites (like Zopa): the first £1,000 of interest earned is tax free for basic rate taxpayers (£500 for higher rate).

The paper suggests HMRC has a significant communications issue as a result of the gig economy: the need to inform the worker about their tax obligations and then help educate them in complying.  The OTS warns that it is possible that the gig economy contributes to an increase in the hidden economy.

The report states: ‘There is then a practical issue for HMRC. Rather than dealing with one employer who employed (say) 100 people, the gig economy may mean they now employ five people, with 95 operating as “giggers”. HMRC had a single point of contact for the 100 individuals and their PAYE/NICs; they now have to deal with 95 individuals plus the rump organisation.

‘The more that gig and the use of platforms grow, the more there needs to be a well understood framework in which they operate and an easy means for workers to fulfil their tax obligations.’

Among the suggestions which the OTS says it wants to put up for debate is the requirement for platform operators to check that all its worker users have a relationship with HMRC. Alternatively there could be a requirement for those engaging workers through platforms to report activities, or even the introduction of some form of withholding tax.

The OTS also makes the point that the growth of the gig economy has potentially significant implications for the Exchequer. The replacement of a company with employees by a platform using the self-employed will not only result in much lower/nil employers’ national insurance but, it also has removed the company's role in collecting PAYE/NICs. The platform itself may not be based in the UK.

‘A switch from traditional employment to getting the work done through gig engagement, however, means less tax will be generated, principally employers’ NICs,’ the report cautions.

John Whiting, OTS tax director, said: ‘“We have often come across issues raised by the gig economy – and its near-relative, the sharing economy – in our work on simplifying the tax system. We’re setting out what we see as the tax issues: these need attention and our aim is to prompt debate.’

The OTS says it may consider a more formal review of the tax issues raised by the gig economy at a later stage.