Why the Uber case doesn't (but) have an effect on how drivers are taxed

The Supreme Court ruled that Uber drivers are "workers" and therefore have certain rights under labor law. This article examines what an “employee” is and why the case has no impact on PAYE or National Insurance (NI) treatment for Uber or its drivers.

The labor law implications of the ruling are covered in an article by our employment team.

Employment status for labor law

The Employment Rights Act of 1996 establishes the distinction between an employee and an employee (as defined in Section 230 (3) (b) and sometimes referred to as "an employee with limbs (b)"):

  • An employee is an individual who works under an employment contract.
  • An employee is a person who either works under (a) an employment contract; or (b) another contract "… by which the individual undertakes to personally do or perform work or services for another contracting party whose status does not contractually correspond to that of a customer …". It follows from this definition that an employee who is not an employee is a “member (b) employee” and is self-employed.

There is a third “employment status” that is not defined in the law, namely that of a self-employed person providing services under a service contract. Limb (b) Employees are technically self-employed, but the vast majority of the truly self-employed are not “employees”. Uber has historically treated its drivers as self-employed.

For labor law purposes we consider three different statuses, with an overlap in that "employee" includes an "employee (member) (a) employee" and "member (b) employee" and that the self-employed class includes a " Limbs (b) worker "and a truly self-employed person.

The court found that the obligations between Uber and the drivers were contracts to provide services according to the definition of "link (b)" set out above, and that the workers were therefore entitled to certain employment rights.

Employment status for tax law

In determining the tax treatment of payments to individuals (including whether a payment should be subject to PAYE and / or NI contributions) we need to look at employment status in a binary way. For tax purposes, an employee is defined in Section 4 of the Income Tax (Earnings and Pensions) Act 2003 as an individual employed under a service contract.

If there is a service contract that does not fall under this definition, a person is paid under a service contract and is not an employee.

The distinction between whether a person provides services under a service contract or a service contract is taken into account in the case of precast concrete (incidentally, a labor law case on the status of limbs (a)), which sets out a number of criteria, including the degree of Control of the client over the way services are provided and the existence of a mutual commitment between the two parties.

While Uber could no longer rely on treating employees as self-employed for labor law purposes, the court was not asked to consider whether they were employees based on the definition of term (a) which overlaps an employee for those purposes or whether they have passed the tests outlined in ready-mixed concrete. Since the court has not been asked to determine whether the drivers qualify as employees within point (a) (the same test as for tax purposes), the Uber case will not result in Uber PAYE or NI must operate withholding tax or liability to the employer NI. However, reforms in this area are clearly a hot topic and so this may be a change that will be made to the legislation shortly.

About judgment will reshape the gig economy

https://www.ft.com/content/fa86829e-1eb1-4cb2-b92f-482110a752