Employment rights may be different from tax treatment

The Supreme Court’s decision in Pimlico Plumbers tells us one important thing about taxation of the gig economy.  The tax treatment of an individual is assessed separately from the rights of a worker under employment legislation.  Mr Smith, a heating and plumbing engineer, claimed before the Employment Tribunal that he was an employee of Pimlico Plumbers under a contract of service and alternatively that he was a ‘worker’.  The Tribunal dismissed his employment claim but concluded he was a ‘worker’.  Pimlico appealed this finding to the Supreme Court.  Lord Wilson, delivering the judgement of the court, said:

“From   1970   onwards Parliament has   taken   the   view   that, while only employees under a contract of service should have full statutory protection against various  forms  of  abuse  by  employers  of  their  stronger  economic  position  in  the relationship,  there  were  self-employed  people  whose  services  were  so  largely encompassed  within  the  business  of  others  that  they  should  also  have  limited protection,  in  particular  against  discrimination  but  also  against  certain  forms  of exploitation  on  the  part  of  those  others;  and  for  that  purpose  Parliament  has borrowed and developed the extended definition of a “workman” first adopted in 1875.”

Later, Lord Wilson notes “Mr Smith correctly presented himself as self-employed for the purposes of income tax and VAT.” 

There has been much debate on employment rights and tax treatment of individuals engaged in the so-called gig economy.  The Supreme Court demonstrates that the issue goes back to 1875 – and that in some cases self-employed individuals do have additional rights, but below those of employees engaged under a contract of service. 

Mr Smith was entitled to protections due to a ‘worker’ primarily because his contract with Pimlico Plumbers was one of personal service – and the company was not a client or customer of his.