Why the Uber case does not (yet) affect how drivers are taxed

26 February 2021

The Supreme Court has ruled that Uber drivers are “workers”, and so are entitled to certain rights under employment law. This article considers what a “worker” is, and why the case does not impact the PAYE or National Insurance (NI) treatment for Uber or its drivers.

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

Employment status for employment law

The Employment Rights Act 1996 set outs the difference between an employee and a worker (as defined by section 230(3)(b) and sometimes called a “limb (b) worker”):

  • An employee is an in individual who works under an employment contract.
  • A worker is an individual who works under either (a) a contract of employment; or (b) any other contract “… whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client…”. It follows from this definition that a worker who is not an employee is a “limb (b) worker” and is self-employed.

There is a third “employment status”, not defined in the Act, which that of a self-employed individual who engages to provide services under a contract for services. Limb (b) workers are technically self-employed but the vast majority of truly self-employed persons are not “workers”. Uber has historically treated its drivers as self-employed.

So for the purposes of employment law we consider three distinct statuses, with an overlap in that “worker” includes a “limb (a) employee” and a “limb (b) worker” and that the class of self-employed persons includes a “limb (b) worker” and a truly self-employed person.

The court found that the engagements between Uber and the drivers were contracts to perform services under the “limb (b)” definition set out above, and so the workers were entitled to certain employment rights.

Employment status for tax law

When determining the tax treatment for payments made to individuals (including whether a payment should be subject to PAYE and/or NI contributions), we are required to consider employment status in a more binary fashion. For tax purposes, an employee is defined in section 4 of the Income Tax (Earnings and Pensions) Act 2003 as an individual in employment under a contract of service.

If there is a contract for services that does not fall within this definition, an individual is paid under a contract for services, and is not an employee.

The distinction between whether an individual provides services under a contract of service or a contract for services is considered in the Ready Mixed Concrete case (incidentally an employment law case on the limb (a) status), which sets out a number of criteria including the degree of control the client has over the way services are provided, and the existence of a mutuality of obligation between the two parties.

While Uber could no longer rely on considering workers as self-employed individuals for employment law purposes, the court was not asked to consider whether they were workers by virtue of the limb (a) definition that overlaps with an employee for these purposes or, therefore, whether they satisfied the tests set out in Ready Mixed Concrete. As the court was not asked to decide whether the drivers met the conditions to be considered employees within limb (a) (the same test as for tax purposes), the Uber case does not give rise to a requirement for Uber to operate PAYE or NI withholding, nor any liability to employer NI. However, reform in this area is clearly a hot topic and so this may be a change which will be made in legislation before too long.

Uber judgment is set to reshape the gig economy

Get in touch