As many of you will know, we’re the Secretariat of the All-Party Parliamentary Group for Entrepreneurship, which sits across all major parties in the House of Common and Lords. It's job is to encourage, support and promote entrepreneurship across the UK, and ensure that Parliament is kept up-to-date on what is needed to create and sustain the most favourable conditions for entrepreneurship.
Today it published a briefing paper on the Sharing Economy: a vibrant and growing pillar of the UK’s economy.
Over the past decade, venture capitalists have invested £3.47bn in 465 sharing and on-demand economy businesses. Almost half of us use sharing economy apps to access goods and services. This is a trend that’s only going in one direction.
And a good thing too. It’s so much more efficient to share than to own, and more efficient to rent services flexibly – whether rooms (Airbnb), cars (Uber), cleaning (Housekeep), wellbeing (Urban), baby clothes (Bundlee), or even dogs (Borrow My Doggy).
These innovations make the scarce plentiful, reducing transaction costs and cutting waste. Whether you’re a cold-hearted Ebenezer Scrooge looking to save a few pennies, or a warm-hearted Bob Cratchit trying to provide for your family on a tight budget – the sharing economy helps everyone. And, in the process – whether it’s their intention, or not – using fewer resources which is better for the environment.
It's not just the private sector. Norwich City Council has even backed the city to become the UK’s first ‘sharing city’ by helping coordinate charities and companies in the sector.
Today’s briefing paper isn’t really a celebration of the sector though. That's beyond dispute. It’s a policy-rich analysis of the key challenges it’s facing and what we need to do to ensure it continues to flourish.
Sharing economy businesses face headwinds – none stronger than the way they could be taxed. Many entrepreneurs we spoke with and who responded to our Call for Evidence worry about the Treasury’s consultation on applying VAT as standard to all sharing economy transactions.
All they want is a level playing field. Their competitors are offline businesses who sell their services directly to consumers and are under the VAT turnover threshold. One entrepreneur said the change would ‘essentially kill our 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.
As Sam Dumitriu writes: "As the sharing economy grows, the Treasury is understandably concerned about the set-up. But fiddling with the rules on VAT will create major problems for sharing economy start-ups. Take the cleaning platform Housekeep, which matches cleaners with customers. If they were forced to apply VAT in full to every clean booked through their platform, then customers and cleaners would soon leave the platform. After all, there would always be lower-taxed offline alternatives, not least old-fashioned word of mouth."
The Call for Evidence also uncovered problems with a rule designed to prevent low-risk activities such as leasing ships from gaining SEIS and EIS relief.
For example, the investors of Bundlee, the UK’s first baby clothing rental subscription were not eligible to claim SEIS on their investment. In contrast, an e-commerce business that sold the same clothing would qualify for the reliefs. A simple fix would be to amend the excluded trades list to only exclude businesses that are leasing high-value and long-lived assets such as ships or property.
We’ll be pushing for these and the other recommendations around third-party reporting requirements, the implementing an Estonian style tax system, and high visa fees. Once again, it’s proof that many of the most practical policies come from entrepreneurs on the ground.
As Gagan Mohindra MP – Officer to the APPG for Entrepreneurship, Conservative MP for South West Hertfordshire and a former entrepreneur – writes in his Foreword:
“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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