Uber Technologies Inc.'s loss in a five-year U.K. battle over the employment status of its drivers opens up the question of whether the company will be liable to pay more tax.
The answer lies in Her Majesty’s Revenue and Customs’ interpretation of where Uber workers fit within its definition of employee. If HMRC decides that the drivers are indeed employees, campaigners like Good Law Project estimate that Uber could owe as much as 1.5 billion pounds ($2.1 billion) in back taxes.
“If drivers are supplying their services to Uber, it follows they aren’t supplying them to passengers—and so Uber is,"said Jolyon Maugham QC, a barrister and director of the Good Law Project, a nonprofit. “It’s increasingly difficult to see how Uber wriggles out of the billion-pound VAT straitjacket this decision represents.” Maugham had previously sued HMRC over the tax office’s treatment of Uber’s value-added taxes.
The U.K. Supreme Court ruled Friday in favor of several drivers who brought a 2016 lawsuit claiming that they were workers for legal purposes. Under U.K. employment law, there are three types of employment categories—full-time employed, workers, and self employed. Worker status lies between those that are fully independent contractors and employees. Employers must give those holding worker status additional rights such as overtime pay and sick leave.
However, employment status for tax law is determined by a different process, which only has two categories—employed and self-employed. HMRC will have to determine from the ruling if it should reclassify Uber drivers as employees under the tax process.
A spokeswoman for HMRC said the agency was “unable to comment on an identifiable business,” but that its “role is to collect the right amount of tax due under U.K. law and we carefully scrutinize businesses. We make sure large businesses, like all other taxpayers, pay all the taxes due under U.K. law.”
“The case states explicitly that it is about determining whether the Uber drivers were “workers” and so entitled to protection such as national minimum wage and working time regulations. This does not necessarily mean that they were employees for tax purposes,” Heather Self a tax partner Blick Rothenberg said.
Judith Freedman, Pinsent Masons professor of tax law and policy at the Oxford University Center for Business Taxation, said that while the decision focused on the worker question, “We do not use this category in U.K. income tax law. For VAT the question is around principals and agents. So, the decision has no immediate bearing on tax.”
Uber and other gig-economy companies have been fighting worldwide over according gig-workers the same benefits that regular employees receive. In California last year, voters backed Proposition 22, a measure backed with $200 million from gig companies including Uber, to classify drivers as independent contractors with limited benefits.
An employee reclassification in U.K. would mean Uber must charge an additional 20% VAT on its fares retroactively and going forward and possibly owe additional employment taxes and fines, the company said in an October financial filing.
“We respect the court’s decision, which focused on a small number of drivers who used the Uber app in 2016,” said Jamie Heywood, Uber’s regional general manager. “Since then we have made some significant changes to our business, guided by drivers every step of the way.”