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4 Nov 2016 02:30pm

The tax implications of the Uber ruling

Uber could face a substantial tax bill if last week’s tribunal ruling is upheld and drivers are no longer classed as self-employed

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Caption: Anita Monteith from ICAEW’s tax faculty says the tax at stake is “enormous”

The London Central Employment Tribunal ruled last week that two Uber drivers, who, along with 19 other drivers, brought claims against the company, are not self-employed but workers who are entitled to essential workers’ rights including to be paid the National Minimum Wage and receive paid holiday.

Although only the two test claimants, Yaseen Aslam and James Farrar were named in the judgement, Leigh Day, the law firm who represented the drivers, said the judgement applies to all 19 drivers who brought the claim against Uber.

The firm added, “While technically the judgement only applies to the 19 drivers who brought the claim, the reasoning behind the judge’s finding should apply to all Uber drivers.”

If I were in HMRC, I would be paying close attention

Anita Monteith, technical manager in ICAEW’s tax faculty

“This means that every Uber driver can bring a claim, that they are entitled to holiday pay and National Minimum Wage.”

Annie Powell, a lawyer in the employment team at Leigh Day who worked on the case added that the ruling “will impact not just on the thousands of Uber drivers working in this country, but on all workers in the so-called gig economy whose employers wrongly classify them as self-employed and deny them the rights to which they are entitled.”

Maria Ludkin, legal director at the GMB union, who brought the drivers’ claims forward, said, “This loophole that has allowed unscrupulous employers to avoid employment rights, sick pay and minimum wage for their staff and costing the government millions in lost tax revenue will now be closed.”

Anita Monteith, technical manager in ICAEW’s tax faculty said the tax at stake is “enormous”.

She added, “If I were in HMRC, I would be paying close attention.”

The ruling could mean Uber is liable for millions of pounds in National Insurance contributions (NICs) and VAT payments.

However, Uber, who are appealing the ruling, pointed out that the judgment states that the claimants have been classed as workers, not employees, which is an important distinction when it comes to NICs.

A tax tribunal would have to rule that the drivers are employees, for Uber to be forced to pay NICs on employee’s wages, something it has avoided by engaging drivers on a self-employed basis.

If Uber drivers are determined to be employees, rather than just workers, the app will face significant tax burdens.

Tax specialist Jo Maugham estimates that if UK Uber drivers are classified as employees, it could face a bill of £13m per month for NICs alone — £156m a year.

"If they are found, in what would have to be separate proceedings before a specialist tax tribunal, to be employees then, assuming the 40,000 drivers engaged by Uber earned an average of £600 per week, Uber would accrue a NICs bill of over £13m for every month it has operated — or continues to operate — these arrangements," tax specialist Jo Maugham wrote on his blog.

Maugham added that HMRC has “ample reason” to take a case against Uber.

This loophole that has allowed unscrupulous employers to avoid employment rights, sick pay and minimum wage for their staff

Maria Ludkin, legal director at the GMB union

The drivers themselves would also have to pay a higher tax bill if they are classed as employed, rather than self-employed.

While HMRC said it cannot comment on identifiable cases, a spokesperson said, “The government takes false self-employment very seriously, and is committed to taking strong action where companies, to reduce their costs, force their staff down routes which deny them the employment rights and benefits they are entitled to.

“Where companies are believed to have misclassified individuals as self-employed, HMRC establishes the facts of the case and will take steps to ensure that all the appropriate tax, NICs, interest, and penalties are paid.”

Steven Eckett, employment solicitor at Gardner Leader warned that Uber will still have a lot of changes to make if its drivers are classed as workers and not employees.

He highlighted that workers are entitled to minimum legal rights including the right to claim unfair dismissal, to receive statutory sick pay, maternity, paternity and parental rights; to be paid the national living or minimum wage depending if they are aged 25 or more; to have working time rights such as not to be forced to work more than 48 hours per week, regular rest breaks and night working health and safety standards; and to receive a statement of terms and conditions of employment.

He added that Uber will also need to have a qualifying auto-enrolment pension scheme in place and backdate any pension contributions.

“There is also the issue of immigration. If those you hire are classed as workers then the burden to vet them will be on the business to ensure that all those individuals have the right to live and work in the UK. Failure to do so can lead to fines and ultimately criminal sanctions against the business and also the individual, not to mention the risk of bad publicity should the business fail to compile to any minimum legal employment rights,” Eckett said.

Sinead Moore

 

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