© Reuters

A legal battle over the employment rights of Uber drivers has tax implications that could run into hundreds of millions of pounds, according to tax experts.

Revenue & Customs is expected to scrutinise the tax affairs of the car-hailing app if the courts uphold a tribunal ruling last week that two Uber drivers are “workers” who are entitled to the minimum wage and holiday pay.

It could then bring its own case against Uber for national insurance contributions and VAT.

Anita Monteith of the tax faculty of the Institute of Chartered Accountants in England and Wales said: “If I were in HMRC, I would be paying close attention. The tax at stake here is enormous.”

Jolyon Maugham, a tax barrister, said there was “ample reason” to think that HMRC should take a case on this issue. If a tax tribunal ruled the drivers were employees, he estimated that Uber would face a NICs bill of more than £13m a month, assuming its 40,000 drivers earned an average of £600 per week.

The scope for an extra bill is because employers have to pay NICs on employees’ wages but not on the money they pay to the self-employed. There is also a higher rate for contributions paid by employees than self-employed workers.

David Wilson of RSM, a professional services firm, said there was a big VAT advantage from using self-employed drivers that could be jeopardised if it was shown that the company, rather than the driver, was providing the service.

Taxi fares are liable for VAT but most of the drivers would be trading below the VAT threshold of £81,000 which means that little, if any, VAT is likely to be currently collected on the fares.

If the company was held responsible for VAT, it would cost up to a sixth of the total value of the fares. Given the paucity of financial information about Uber’s UK business he declined to estimate a figure but said the VAT exposure was “huge”.

Employment experts stressed that the legal ruling that the Uber drivers were “workers” would not automatically impact their tax status because — unlike employment law — the tax code only distinguishes between the employed and the self-employed.

Andy Chamberlain of IPSE, the association of independent professionals and the self-employed, said the ruling had no tax implications because payments to “workers” — an intermediate status that bestows some employment rights — are not subject to PAYE and NIC obligations.

Meredith McCammond of the Low Incomes Tax Reform Group said the tests used by HMRC to judge whether an individual was employed were very similar to the factors considered by an employment tribunal. It would be a “bigger swing” to reclassify the drivers from self-employed to employed than it would be to change their employment rights to those of workers.

Ms McCammond said in the event of an adverse ruling, Uber was likely to change its contract with its drivers to ensure it was not their employer. Otherwise it might try to minimise its costs and obligations by outsourcing the PAYE function to an “umbrella” company, an employment business that acts as an employer to agency staff. The complexity of such arrangements meant that workers often lost out, she said.

The government has ordered a crackdown on “false” self-employment and HMRC can pursue an employer for six years of unpaid tax and penalties in cases where employees have been misclassified.

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