EMPLOYMENT STATUS
Pimlico Plumbers status decision
The Supreme Court has upheld earlier decisions confirming an individual’s claim that he was a “worker” and not self-employed. What are the tax and NI consequences of this ruling?

Employment status. The long-running battle between Gary Smith (GS) and a well known plumbing firm (Pimlico Plumbers Ltd and another v Smith 2018) about his employment status finally came to an end on 13 June 2018 when the Supreme Court ruled that he was a “worker” and not self-employed, as Pimlico claimed.

Worker or employee. The worker status is a little short of being an employee, but conveys many employment rights such as the minimum wage, holiday and sick pay. The worker status has been around for quite a while, but has come to the fore recently because of the growing concern over workers in the so-called “gig economy”, such as Uber drivers.

Tax and NI. The difference between a worker and an employee is significant for PAYE tax and Class 1 NI purposes. The legislation specifically refers to income of “employees” and “employed earners” and not “workers”. This means that as the law stands HMRC can’t go after businesses which use the services of individuals under worker contracts.

Worker status? Like employee status, a worker is an individual who personally carries out work, i.e. not via a company or other intermediary. The same status tests of control, i.e. the right to send a substitute worker, and the obligation of the employer to provide work and the individual to do it, apply. If the last condition isn’t met, but the others are, the individual probably won’t be an employee, but is likely to be a worker.

Gig contracts. The Pimlico decision has resulted in fresh calls for the government to step in with legislation to make employment status clearer. However, in our view this is unlikely to happen any time soon given that the 2017 Taylor report recommended precisely that, but the government decided not to follow through. Tip. The best way to avoid challenges over employment status is for your contracts and working practices to impose as little control over those who work for you as possible.

Worker status isn’t relevant to PAYE tax and NI; that only applies to employees. To reduce the risk of HMRC asserting that a worker is also an employee, limit the control you place on freelancers as far as possible.