Driving in the middle of the road

01 November 2016

Andrew Hubbard

As a tax adviser why should I bother to comment on Uber? After all it is not a tax case – indeed the word tax doesn’t appear anywhere in the judgement. But it is important because it sheds light on one of the age-old problems in the tax system: whether or not somebody is an employee.

I put the question in a binary way, because that is the way we have all been conditioned to think about it: is somebody is employed or self-employed? Yet, as the Uber decision makes clear, a third category has become much more prominent in recent years, at least in part as a result of developments in EU policy, that is the status of worker.

A worker is, broadly, a person who is not engaged under a contract of employment (written or oral) but who provides services to another party other than by way of a business. It is quite possible to be a worker without being an employee. Establishing that in any particular circumstances is however far from easy and could keep an army of lawyers happy for months. But one of the key differences is that in an employee-employer relationship there is mutuality of obligation: the employer has to offer work and the employee has to do it.

Between a worker and an engager (we can’t call them employers) there is no such obligation. The worker doesn’t have to accept what is offered and the engager is not compelled to offer any work at all.

Workers have a narrower range of rights than employees. They don’t have rights to maternity pay, sick pay or redundancy pay, but they are entitled to paid annual leave and the national minimum wage. It was access to those two benefits which were at the heart of the case.

The decision in Uber was that the two drivers who were the test cases (there is a dispute as to the extent to which the decision applies to all of the other Uber drivers) were workers. They were providing services to Uber but were themselves in business in their own right. So, going back to my binary test, they were not employed but neither were they self-employed!

What impact does this have on taxation? We are so used to thinking in terms of employed v self-employed that it comes as a salutary reminder that the words “self-employed” do not, I believe, appear anywhere in the tax legislation. There is a whole Act dealing with employments, but unless you are an employee (subject to some exceptions not relevant here) you don’t get within the scope of that Act. So you fall into a separate Act which deals with other income, including income from trades and miscellaneous other income. For tax purposes a worker would be usually be treated as carrying on a trade, even though for employment law he is not in business.

This middle way doesn’t really fit comfortably within the tax system. HMRC’s guidance is all written on the basis of the employed vs self-employed division and doesn’t really acknowledge the existence of workers as a separate category. The government website does acknowledge the distinction between worker and employee, but then is wildly inconsistent in the way that it defines those terms: anybody looking there for guidance would end up more confused than they started.

This is not simply an academic point. The “gig” economy (I’ve resisted using that awful phrase for as long as I can) is a reality and needs to be tackled properly and consistently across the whole of taxation and employment law. At the moment the outcome of the Uber decision appears to be that the drivers have access to some key employment rights, such as NMW and annual leave, without being subject to PAYE and NIC and not being subject to the very limited range of expense deductions which apply to employees.

I don’t want to comment on the merits or otherwise of this particular case: I can see both side’s point of view. But as a matter of public policy this whole key area of the law is in a real mess. Time for a fundamental review!

For more information contact Andrew Hubbard or your usual RSM contact.