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Yorkshire

Jonathan Oxley - Regular Update

11 Jan 2017


24 November 2016
Jonathan Oxley, chairman, Institute of Directors in Yorkshire and the Humber

The recent court case concerning whether Uber drivers are employees or self-employed highlights a number of important issues about the future of work.

The number of self-employed people has risen rapidly in recent years and now stands at around 15% of the workforce – nearly five million people.

Employment status has always been the subject of scrutiny, not least for tax purposes. An employer must deduct income tax (through PAYE – pay as you earn) and national insurance contributions (NICs) on behalf of the employee as well as making the employer’s NIC contribution.

Case law and HMRC guidance has established a number of key indicators that govern the status of an individual. For example, someone who provides their own equipment and has autonomy as to how and when tasks are performed is more likely to be defined as self-employed than someone who uses an employer’s equipment and regularly clocks in and out of a fixed workplace.

Economic downturns usually see a rise in self-employment as employers make redundancies to save costs. This means many people have little choice other than to set up on their own. This is what happened after the financial crisis in 2007.

Employment has traditionally represented more security and confers a number of benefits such as sick pay, paid holidays, protection from unfair dismissal and optional benefits such as travel loans or subsidies, gym memberships and subsidised canteens.

However, many people are opting for self-employment as a lifestyle choice, enjoying the greater autonomy and flexibility that it brings. This has led employers to be more flexible in accommodating the ways in which employees work. In a world where the concept of a job for life is receding many see the answer as having several jobs at the same time. This is sometimes referred to as portfolio career or, more informally, as the “gig economy”.

The other game changer, as with many aspects of our lives, is technology.

Traditionally the employer’s workplace was the hub where everything was co-ordinated and you had to go to get anything done. It was both the network you needed and the physical means of doing the job.                                                                                                                                        

That is no longer the case. Information technology and the speed of communication and scale of resource available through the internet mean that many tasks can be achieved without the need to be physically close to a central hub.

Indeed in many business models the hub is taking a back seat. Uber facilitates a customer reaching a provider. It is difficult to decide whether an Uber driver is being sent on a job as an employee or whether the driver is a self-employed individual using Uber as their sales and marketing channel.

For those who choose a portfolio career, there has never been a better time to do it or more tools at their disposal. There is more opportunity to operate in this way and embrace the freedom that comes with it.

However as with all freedoms, there is the risk of abuse. There is evidence that a proportion of the self–employed have no real freedom of operation. They lack the benefits of self-employment and are without the benefits of being employed.

There is also an impact on taxation. The self-employed pay tax but typically they will have costs to set against their income, reducing their tax labiality and NICs. There is a greater risk of leakage than in the PAYE system, where an employer calculates and pays tax on behalf of employees (collecting it instead from large number of individuals is always going to be less efficient).

There is a negative cashflow effect as PAYE gets the tax to the government quicker than collection through self-assessment, used by the self-employed to pay their tax typically bi-annually in January and July.

It is not surprising therefore that the government is planning an inquiry into the future of work, to ascertain whether our laws are adequate to deal with the changes in work patterns enabled by new technology.

They are likely to conclude that changes are required to prevent exploitation and protect tax revenues.

Ends

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Notes to editors

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