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Uber Supreme Court decision: how should ‘workers’ be taxed?

26 February 2021

Whilst the recent Supreme Court decision to award statutory rights to two former Uber drivers is a landmark ruling for gig economy workers, the ‘worker’ finding raises more questions for platform providers as to how these workers should be taxed; and whether they are complying with their own tax obligations.

The term ‘worker’ is widely established in employment law, however, it is not currently recognised by HMRC – as the UK system of taxation chooses to categorise individuals as either employed or self-employed.

Even though the judgment casts doubt on the self-employed status of gig economy workers, it provides no guidance as to how PAYE and NIC should apply and at what rates.

Therefore, for tax purposes, workers within the gig economy will continue to pay tax as self-employed persons and it would be for HMRC to bring a case against Uber that the workers in fact held employee status.

In addition to employment tax issues, the case has raised questions about Uber’s VAT position and whether they act as principal or agent for VAT purposes. In essence, if it is determined that Uber (rather than the workers) provide transport services, Uber will be liable for VAT on the value of the rides. It is reported that HMRC has raised protective assessments of £1.5bn on this basis.

Finally, with new IR35 rules coming into force from 6 April 2021, the issue of correct determination of the employment status of all those working in, or for a business, is coming to the fore.

The Uber decision highlights once again that the current system is outdated and inconsistent, and there is a clear need for harmony between the tax and employment systems.

Perhaps it is now time for the Government to revisit the Office for Tax Simplification’s 2018 recommendations for taxing the gig economy which foresaw these very problems and encouraged a distinct method of taxation for this class of worker?

Whatever the outcome, other platform providers should ensure they understand the potential tax consequences of the way in which they seek to structure their relationships with the people needed to operate their businesses.

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