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Businesses operating in the gig economy may not be able to go on avoiding PAYE and payroll tax

A recent case has found that drivers described as “self-employed” were employed under a contract of service for each driving engagement and the drivers “employer” is therefore liable for PAYE and 13.8% Class 1 NIC “payroll tax”.

This could have a significant impact on the so-called “gig economy”.

The emergence of the gig economy, where individuals do stints of work or “gigs” on the basis that they are “self-employed” and responsible for their own tax and NI is an attractive business model because it offers flexibility to both the “gig-or” and the “gig-ee”, but it also means that the gig-or is not subject to PAYE or liable to pay 13.8% class I NICs, the “payroll tax”.  This is a significant benefit over the traditional model of a business employing people.
Some businesses, notably Uber, have used this model very successfully to provide a service to the public with a workforce that is described as “self-employed” but who are subject to significant control and who, in practice, have very little, if any, autonomy.
The documentation used to regulate the relationship between the service provider and its workforce to give the service provider maximum control over its workforce whilst making it look consistent with self-employed status is usually tortuous and convoluted.
Employment tribunals have demonstrated that they will look beyond the documentation and consider the de facto relationship between the parties when considering someone’s employment status.
This has led to employment tribunals deciding that individuals working in the gig economy are “workers” and entitled to paid holiday, sick pay and the minimum wage, notably in the cases of Uber and CitySprint.
 A recent case in a First Tier Tax Tribunal has, however, gone further and found that drivers who were described as “self-employed” were, in reality, employed under a contract of service for each driving engagement.
The tribunal found that the drivers were not running their own business in any real sense in so far as they did not provide the lorry they drove, were under significant control and assumed no financial risk.
The effect of this decision is that the drivers “employer” becomes liable for PAYE and payroll tax.
This is a potential windfall for HMRC which it can be expected to take advantage of.