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Blog: Changes to off-payroll working: Uber tricky or will it be easy to Deliveroo?

The year 2018 will see a storm brewing around the employment status of workers in the UK. This follows 2017’s appeal from Uber, directly to the Supreme Court, to try to overturn an earlier Employment Appeal Tribunal (EAT) which found that its drivers are, in fact, ‘workers’.

There is already significant uncertainty among employers as to whether individuals are ‘self-employed contractors’, ‘workers’, or ‘employees’. A legal dispute involving the University of London and a subdivision of workers, who are advocating they should be entitled to more employment rights, could potentially establish a new status – ‘the outsourced worker’. In addition, there is also the eagerly awaited government’s response to the Taylor Review, the consultation on the extension of the ‘Off-Payroll in the Public Sector Rules’ to the private sector, and a call for evidence on how we determine employment status.

It is clear therefore that employment status will continue to make the headlines this year and that there are a number of potential changes ahead.

How did we get here?

Employment status has been an issue of contention throughout my tax career. I recall reviewing many different cases when I was an HMRC PAYE Auditor in the early 1990s. Since then there have been some clear milestones worth mentioning.

In 2000, we saw the introduction of IR35, which focused on people working through their own limited companies, or partnerships (collectively often referred to as “PSCs”), and were considered, in the eyes of HMRC, to be ‘disguised employees', and therefore not paying the tax they should be (although HMRC considers there is 90% non-compliance with this regime).  Added to this, is the recent switch of liability from PSCs to those making payments to PSCs, for individuals working in the public sector.  The Chancellor Philip Hammond confirmed in the 2017 Autumn Statement that he is looking to extend these rules to the private sector, with a consultation to be published soon.

We have also various employment law cases looking at ‘worker’ status, a number of PSC cases in which employment status in an IR35 context will be tested, and the case which The Good Law Project is bringing against Uber. This is essentially a VAT case with an important read-across to ‘worker’ status.   In short, if Uber drivers are ‘workers’  as was found in the case of ‘Aslam and others v Uber BV and others’ (subject to Appeal), the implication is that they are providing their services to Uber; this supports the view of The Good Law Project which also claims (in essence) that drivers are working for Uber, not their passengers. Finally, Pimlico Plumbers Ltd has been given leave to appeal to the Supreme Court against the finding that associated plumbers are its workers, as previously determined by the Court of Appeal. That these cases can climb to highest courts, tells us that the issues are either extremely complex, or have significant commercial ramifications or both.

Last year’s Taylor report, meanwhile, recommended that the Government prioritise replacing the existing ‘worker’ status with a new ‘dependent contractor’ status, which would carry a different threshold test.

The report recommended that much greater weight should be placed on control, rather than on the requirement for personal service. It said this this would ‘make it harder for employers to hide behind substitution clauses’. In November 2017, this approach was endorsed by the House of Commons Work and Pensions and Business, Energy and Industrial Strategy Select Committees in their joint report entitled ’A framework for modern employment’.   It is perhaps surprising that the problem of substitution is still ongoing for “workers” when back in 2014, the test of personal service was changed for agency workers to render substitution irrelevant.

From a tax point of view, the Taylor report also suggested considering whether or not dependent contractors should be subject to PAYE/NIC like employees. Earlier, in March 2015, the Office of Tax Simplification (OTS) issued a report covering false self-employment and off payroll payments and proposed some medium-term improvements to HMRC's guidance and processes. Longer-term, the OTS has set out some areas worthy of further exploration, such as the idea of a statutory employment test; last year’s Taylor report echoed this with the suggestion that core elements of the status test should be included in primary legislation with further detail covered by regulations to provide essential flexibility.  One suggestion made by the OTS was to consider assessing NIC on an Annual, Cumulative, and Aggregated (ACA) basis.  This was not taken forward due to the significant number of winners and losers.  However, the current NIC regime is arguably responsible for the high level of non-compliance with IR35 and reform of NI alongside reform of IR35 should not be abandoned.

In December 2016, the OTS also published a paper on the main tax issues within the ‘gig economy’, which in itself did not make any recommendations, but nevertheless may be a precursor of some of the themes which would be considered in a future call for evidence or consultation from HMRC.

The fact is employment status is a complex area. It took, in one case, five years and two visits to the Court of Appeal (‘Stack v Ajar-Tec Ltd [2015] EWCA Civ 46’) before it was resolved.
Employment status also generates headlines. Back in 2011, there were the high profile cases of ‘Weight Watchers (UK) Ltd & Others versus HMRC’, as well as ‘Autoclenz Ltd versus Belcher’, which gained significant attention in the media and within the industry at large. In the latter case, it came to light that at one point HMRC had agreed the individuals, valeters for the car company, were self-employed, which demonstrates that for some employers there are different answers to be found in tax and employment law.  For instance, 'worker’ status is not recognised in tax law, so it falls into a grey area.

In those cases control was an important factor which contributed to the final decision of ‘employed status’. In the Weight Watchers case, it was held that the ‘leaders’ engaged to arrange and conduct meetings of its members, were employees. This was despite the fact that there was detailed documentation describing them as independent contractors; a timely reminder that however you draft your documents, the facts will prevail.

Where does that leave us now?

As tax professionals we need to advise engagers to keep an eye on this area for further developments, while also making sure they are up to date with the current rules. For those working in-house, there needs to be good procedures in place to make sure their processes are adequate. This involves reviewing processes for determining if individuals /intermediaries should be off-payroll undertaking due diligence on any agencies used reviewing the procurement processes in order to consider what questions need to be asked reviewing the engagement processes not just through procurement but also where budget holders have authority to engage directly keeping an eye out for future guidance and legislation considering seeking specialist advice, as these issues cross both employment law and tax, where different solutions may be required.

What next?

With so many employment cases to be heard in such a short place of time, it is difficult, like in any storm, to forecast which way the winds will blow. As advisors, the best course we can navigate will be to keep our eyes keen and focus on the movement of the waves ahead.

CIOT Council member Susan Ball is Head of Employers Advisory Services, at national audit, tax and advisory firm, Crowe Clark Whitehill. Susan will be speaking at the CIOT’s Spring Residential Conference 2018 in Cambridge. For more information on speakers and tickets, click here.

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