For those operating a Personal Service Company, the result of the UBER case [Aslam, Farrar & Others v UBER] may have sent a slight shiver down your spine.
It was widely publicised that UBER, the hugely successful taxi app company, lost its case at an employment tribunal, where it was agreed that its drivers were actually Workers as opposed to being Self Employed.
Although the case has the potential to send shockwaves through the tax world, we must first gain some clarity as to how employment status is determined in the UK.
Laying down the Law: Employment v Tax
The UBER case was brought by several drivers, backed by the GMB trade union, seeking workers rights, such as national minimum wage, paid holiday and statutory sick pay, as such it was heard under an employment tribunal, not a tax tribunal.
Having reviewed the legal and practical arrangements in detail, the Employment Tribunal decided that, for the purpose of employment law, the drivers were workers and indeed entitled to workers rights.
Now this is where it gets complicated, a worker is not the same as an employee, both for employment law and tax law purposes and the government even go as far to state on the GOV.UK website that an individual may have a different employment status in tax law.
That said the employment tests in employment law and tax law do interact, although HMRC are not bound on the status of an individual simply on the basis they have received a decision from an employment tribunal.
Where to now mister
It is without doubt that the decision in this UBER case and subsequent proceedings will occupy the minds of employment and tax specialist in 2017 and probably beyond.
The implications could be wide reaching with huge financial implications, not just for UBER and its drivers and passengers but god forbid, those operating personal service companies.
A-Z [F] of Implications
- Employees NIC – If drivers are subsequently deemed employees by HMRC they will have to pay 12% NIC instead of 9% as self-employed! Perverse as the drivers sought this action.
- Employers NIC – UBER must pay 13.8% Employers NIC on all payments to drivers, ouch!
- Benefits – UBER will have to accrue and pay benefits such as holiday, sick and maternity/paternity to its employees! Double ouch!
- Fewer deductions – As an employee Drivers will no longer be able to claim deductions for operating their car, only a mileage allowance would be allowable.
- VAT Charged to drivers – If UBER was not providing a service to its drivers but rather employing them, then VAT should not have been charged and should be refunded by HMRC.
- THE KILLER – VAT CHARGED TO PASSENGERS – The current model states that the driver is providing the service to the passenger, typically an UBER driver is not VAT registered. However, if it is deemed that as an employee of UBER, UBER themselves are, and were, the provider of the service to passengers, then every journey ever made by an UBER driver should have included VAT! This could potentially be an UBER OUCH, and one which is life threatening.
It is hard to know where this decision will take us, however it is clear the employment tribunal have now paved the way for HMRC to attack, whether that will be in the form of a PAYE, NIC or VAT claim we will have to wait to see.
One thing is for sure, we will keep you informed of progress, all of our clients receive tailored advice and planning keeping them informed and ahead of the game, essential when operating a business in todays ever changing tax environment.