Steed on: The growth of the gig economy could leave us all Uber confused

The ‘gig economy’, driven by companies such as Uber and Hermes, is transforming how we do business, and provides work for an army of people who are deemed, rightly or not, to be self-employed.

There are two issues here: the employment status of these people and their tax status. In the UK, we now have an employment law concept of a ‘worker’ – someone with fewer employment rights than an employee but more than a self-employed contractor. In employment law, the issue is whether the person doing the work is ‘self-employed’, a ‘worker’ or an ‘employee’. If they are self-employed, they won’t enjoy rights such as sick pay and the minimum wage. From a tax perspective, the issue is whether they are genuinely self-employed or de facto employees, and therefore which taxes are in play.

Who’s the boss?

I’m always struck by just how close these two issues are. When I read employment law cases such as those involving Pimlico Plumbers or Uber, I could almost be reading a tax case. What both of these strands have in common is that the gig economy is trying its hardest not to be an employer, and is using tightly drafted contracts covering such issues as logos, insurance, tax and NIC liabilities, and payment from customers.

So, with Pimlico Plumbers, the ‘operatives’ were required to wear Pimlico uniforms and to drive vans with the Pimlico logo, and could be contacted by customers only through Pimlico. Contracts and estimates were issued in the name of Pimlico and payment was made to Pimlico. Pimlico monitored the movements of operatives. The plumbers were required to pay for their own tools and materials, to accept personal liability and to provide insurance. They were also required to work for a minimum of 40 hours over five days.

Pimlico Plumbers saw that it was in its best commercial interests for operatives to be treated as self-employed, for the purposes of its relations with HMRC, legal proceedings and employment rights. But it wished to present its operatives to the public as part of its workforce. So is the self-employment classification real or a sham? In the recent Uber case, the GMB union successfully supported two drivers who claimed that they were workers with rights. From a direct tax perspective, this issue has been a constant battleground.

HMRC says it is committed to stamping out “false self-employment” and, under the Finance Act 2014, workers placed by an agency, such as Amazon drivers, are now effectively forced under Real Time Information, where they are subject to supervision, direction or control (or the right thereof). The Finance Act 2016 removes tax deductions for home-to-workplace travel by those who come to clients through “intermediaries”.

There are some interesting VAT issues in play as well. Just who makes a supply of taxi services in the Uber taxi business model? The driver or Uber? If it’s the driver, they’re unlikely to be over the UK registration threshold. If it’s Uber, VAT should be charged at 20% in the UK. But it seems Uber processes jobs via a Dutch subsidiary, Uber BV, allowing Uber to charge a lower VAT rate. The Dutch VAT rate is 0% for entrepreneurs conducting foreign businesses from the Netherlands.

This allows Uber to offer super-low prices. So VAT is charged to the consumer, but it’s Dutch VAT and it’s effectively zero. It’s a bit of a minefield, and one that will only become more complex as the gig economy grows.

Michael Steed is co-chairman of the ATT's tax Technical Steering Group and columnist for Accounting Technician magazine.