17 February 2017
The very long-running saga of the distinction between an employee and a self-employed provider of services has acquired a couple of new chapters recently with the well publicised cases of Uber taxis and Pimlico plumbers. If your business uses the regular services of operatives that are termed ’self-employed’, read on and check if you are vulnerable to attack either by HMRC or by the workers themselves.
In the Uber case, two drivers argued that their actions were controlled by Uber, which meant they were employed by the firm but that they did not have basic workers' rights. The GMB union, which backed the case, described the decision as a "monumental victory" for some 40,000 drivers in England and Wales.
In the Pimlico Case the defendant (Mr Smith) was engaged as a plumber by Pimlico Plumbers for several years until he left and brought a case for unfair dismissal (the right of an employee). The written agreements between him and the company alleged that he was in business on his own account, referring to him as a 'self-employed operative'.
According to these agreements he had to wear Pimlico’s uniform, drive a van leased from Pimlico and could only be contacted by customers through the company. But, as a self-employed person, he was required to provide his own tools, equipment and materials. He handled his own tax and was VAT registered. He also arranged his own insurance and was expected to rectify any mistakes at his own expense.
Although he was required to work a minimum number of hours every week he could nevertheless choose when he worked and which jobs he took. All contracts or estimates for his work were in Pimlico’s name and the company collected all payments by customers. Pimlico was under no obligation to provide work for Smith if none was available. The company didn’t have to pay him in certain circumstances.
The tribunal decided he was not an employee because there was no legal obligation on the company to provide him with work, and the intentions and actions of the parties to the contract made it clear they considered he was self-employed. He also bore a substantial financial risk, including not being entitled to payment in some circumstances, for example, where the client took longer than six months to pay.
However, the tribunal decided that he was a worker because there was an obligation to provide his services personally. He had no effective right to send another workman to carry out his duties.
This case highlights the fact that there is a distinction between employee, worker and self- employed person. Although Mr Smith was found not to be an employee he nevertheless, as a worker, was entitled to many of the rights of an employee including protection from unlawful deductions from wages, and the right to paid annual leave, the national minimum wage, and pension auto-enrolment. It also highlights the right of substitution as a key factor in determining the individual’s status.
A common factor in these two cases is that they were brought by individuals who claimed their rights as workers, rather than by HMRC claiming underpaid income tax and NI. Although both cases might yet be appealed, if the current judgements stand we can expect HMRC to move in. For Uber, with thousands of alleged employees from which no income tax or NI has been deducted, we are looking at a potential multi-million pound bill.
If you have workers that are not on your payroll it’s a good time to assess your risk:
- There is no risk where an individual provides his services through a company or partnership.
- There is very little risk where you pay an individual for a combination of goods and services, especially if these are not supplied on a regular basis.
- There is a significant risk if you engage an individual as a self-employed operative to provide you with services on a continuous or regular basis, especially if that person cannot send a substitute to do the work instead.
If your organisation has anyone who falls into this third category you should seek advice from Nicola Bryan or your usual UHY tax adviser.
