This month’s Chartered Accountants tax case digest considers the landmark UK Supreme Court decision that Uber drivers are in fact workers, not self-employed independent contractors. Important findings by the employment tribunal were viewed by the Supreme Court as showing the drivers to be in a position of subordination and dependency, with little or no ability to improve their economic position through performance or entrepreneurial skill. While the case focuses on employment law issues, there are a number of tax considerations arising from the decision, particularly for those in the ‘gig’ economy. The case is listed as relevant case law in the updated Code of Practice on Determining Employment Status in Ireland.

What’s a worker?

The definition of a worker in section 230(3) of the Employment Rights Act 1996 and other relevant legislation includes those employed under a contract of employment but also extends to some individuals who are self-employed. In effect, employment law distinguishes between three types of people: those employed under contracts of employment, those in business on their own account, undertaking work for their customers – the self-employed, and those in an intermediate class of worker, who are self-employed but provide their service as part of a business carried on by someone else.1

The rights of workers include being paid at least the national minimum wage for work done and receiving paid annual leave.

The Uber argument

Uber contended that drivers are independent contractors, arguing that Uber BV merely acted as a technology provider, and its subsidiary (Uber London) acted as a booking agent for drivers approved to use the Uber app. It was claimed that a contract was made directly between the driver and passenger for the provision of transportation services. Uber acted to collect the payment on behalf of the driver for the provision of transportation services and charged a “service fee” to the driver for the use of its technology and other services. Uber sought to rely on Uber BV’s standard services agreement with drivers, and the written agreement between Uber and passengers to substantiate this claim. It was also emphasised that drivers could work when they wanted.

The Supreme Court decision

The Supreme Court disagreed with Uber. It found that it is wrong in principle to treat the services agreement as a starting point in deciding whether an individual is a worker. In any case, it was held that there was no written agreement between drivers and Uber London, as the services agreements were in Uber BV’s name. To analyse the facts in light of the relevant employment legislation was said to be the correct approach.

The purpose of the legislation was not in doubt, it serves to protect vulnerable individuals with little say or no say over their pay and working conditions, who are in a subordinate and dependent position to those who exercise control over their work. The legislation prevents employers from contracting out of these protections.

The Supreme Court emphasised five of the employment tribunal’s findings:

1. The drivers’ remuneration for the work they do is fixed by Uber and drivers have no say in it (other than by choosing when and how much to work).
2. The contractual terms on which drivers perform their services are dictated by Uber.
3. Once a driver has logged onto the Uber app, their choice about whether to accept requests for rides is constrained by Uber.
4. Uber exercises significant control over the way drivers deliver their services.
5. Uber restricts communications between passenger and driver to the minimum necessary to perform the particular trip and takes active steps to prevent drivers from establishing any relationship with a passenger capable of extending beyond an individual ride.

These factors led the Supreme Court to its decision that the drivers were in a position of subordination and dependency in relation to Uber, with little or no ability to improve their economic position through performance or entrepreneurial skill. It was held that the drivers were rightly found to be workers, not just at the time they were driving passengers, but also at any time they were logged into the Uber app when ready and willing to accept trips in the territory they were licenced to operate.

What’s the tax angle?

The Supreme Court was not asked to consider whether the relationship between Uber and the drivers was to be viewed as a contract of service (employee) or a contract for services (self-employed), and so no judgment was provided on whether Uber was required to operate PAYE or national insurance on the fees paid to drivers.

While this is an employment law case, it shows how the traditional lines between employers and workers have become blurred particularly in new forms of work, such as within the ‘gig’ economy, and how challenging it may be to determine whether the correct tax is being operated.

Further challenges arise with respect to VAT. Fares for taxi or private hire journeys are liable to VAT at the standard rate in the UK. It is likely that most of the drivers traded below the VAT threshold, and so VAT would not have been operated on the services provided by these workers to passengers. The Supreme Court’s decision could lead to Uber being viewed as the provider of the transport services, rather than an agent with the associated VAT consequences.

While no two cases are the same, the importance of correctly classifying a worker in a way that matches the reality of the relationship between the worker and business appears to have driven the Court’s decision in this case. The UK’s IR35 legislation has sought to address “disguised employments” and the Public Accounts Committee in Ireland made a number of recommendations for Revenue to combat “bogus self-employment”. Legislation to place the updated Code of Practice on Determining Employment Status on a statutory footing in Ireland is also expected this year.

The full judgment in this case is available at:- https://www.supremecourt.uk/cases/docs/uksc-2019-0029-judgment.pdf