The Supreme Court in Pimlico Plumbers Ltd v Smith [2018] UKSC 29 held that a heating engineer whose contract described him as self-employed was actually a 'worker' which entitled him to certain rights of an employee. In addition to the employment law implications of this ruling, it is important to consider the significance of the 'worker' category within a tax context.
Factual Background
The underlying dispute in this case arises from an unfair dismissal claim brought by Mr Smith against the company. The company argued (amongst other things) that Mr Smith was self-employed, and therefore was not eligible to make such a claim, on the basis that his contract stated that he was self-employed and that he paid tax and VAT using the rules and rates as they applied to self-employed persons.
The Court of Appeal ruled that Mr Smith was neither employed nor self-employed, but rather a worker. This decision was based largely upon the fact that he was obliged to perform work under his contract personally – he could not pass it on to a substitute. The Court of Appeal also found that he was contractually obliged to do a minimum number of hours work a week, indicating a level of commitment by Mr Smith to the company which was inconsistent with self-employed status. This decision and classification was upheld by the Supreme Court.
Tax Considerations
Even though Parliament has recognised the need for a category of employment between employed and self-employed as far back as 1875, for tax purposes, only the two categories remain.
Consequently, despite the number of different contractual arrangements that exist within the gig economy and in sectors where subcontractors are commonly used, the additional category of 'worker' does not provide an automatic determination for tax purposes.
Although Lord Wilson confirmed within the judgment that Mr Smith had "correctly presented himself as self-employed for the purposes of income tax and VAT", Her Majesty's Revenue and Customs (HMRC) may still take a different view and seek to argue that workers are in fact employed which may give rise to further tax liabilities.
Conclusion
This decision highlights the fact that one's status for tax and for employment is not always the same and careful consideration is required. The fate of this distinction is much more uncertain as the number of people who work in the gig economy increases.
Those who find themselves reclassified as workers should be mindful of the distinctions within employment and tax law and therefore should keep their tax affairs up to date with HMRC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
