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Supreme Court pulls plug on Pimlico employment case

14th Jun 2018
Director CompleteHR Ltd
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Yesterday the long-awaited decision for Gary Smith against Pimlico Plumbers was given when five Supreme Court justices ruled that he was a worker rather than self-employed.

Mr Smith was a highly paid self-employed plumber, earning six figures and had worked for Pimlico for just over five years. However, after having a heart attack he requested his days be cut from five a week to three.  Pimlico declined the request, and because they considered him not to be an employee they took back his company logoed van.

A claim followed, and in April 2012 the Employment Tribunal ruled that he was a worker even though Mr Smith could nominate another plumber to take on a job for him. This power of substitution was limited in scope, as it had to be a plumber under contract with Pimlico, so in reality was no different to someone arranging another employee to do a shift swap for them.

In addition, the tribunal found that Pimlico had a large degree of control over Smith’s “appearance and the cleanliness of his uniform,” and his ability to compete with the company when he ceased to carry out jobs for it.

An appeal followed, and the case continued to both the Employment Appeal Tribunal and the Court of Appeal, but the decision remained – he was a worker.

Many are now calling for clear regulation to aid the confusion over the worker status and gig economy employment. Companies need to understand when someone can be considered self-employed for employment law purposes, as often the tests are not identical as they may be for HMRC’s purposes.

Remember, although your contracts may be watertight the courts always look at the reality of the relationship - not just the words.

Replies (18)

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By Jack the Lad
14th Jun 2018 11:07

I believe this to be a bad decision, although I have not seen Mr Smith's Contract for Services with Pimlico. Had he been employed, his salary and benefits would probably have been much lower than his earnings as self employed. It would have up to him to cover sickness and holidays, pension contribution, etc.
In view of the result, could there be this scenario:
1. Pimlico sue him for the return of overpaid salary, employee's NIC, and other costs?
2. (More likely!) HMRC now challenge all such contracts to recover employer's NIC, underpaid tax on resulting over-claimed expenses not wholly, exclusively and necessarily incurred ...etc.
We are in for interesting times....!

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Replying to Jack the Lad:
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By john hextall
14th Jun 2018 11:36

It is obvious he was employed. He had a company van and uniform, couldn't work for anyone else and was unable to turn down work from Pimlico. He may have been overpaid, although plumbers in London do earn a phenomenal amount, but his employer avoided paying holidays, sickness, NI and pension contributions. I think the decision will end up costing both parties, unless they can do some sort of deal with HMRC, but is undoubtedly the correct one.

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Replying to john hextall:
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By vstrad
14th Jun 2018 12:37

The Court found he was a worker, not an employee.

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Replying to vstrad:
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By johnjenkins
14th Jun 2018 12:50

Under EU law you can be a worker and self-employed. You can also be self-employed and entitled to holiday pay.

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Replying to john hextall:
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By tonycourt
15th Jun 2018 17:26

Actually he could turn down work. The contract (and I think the reality) was that there was no mutuality of obligation. The main sticking points seem to have been the very limited nature of the substitution clause (even more so in practice than in the contract), control (in practice) and the subjective view that GS was part and parcel of the organisation rather than trading on his own account.

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By silverghost
14th Jun 2018 11:35

It's not just what was in the contract, but how the engagement worked in practice. This "ability to compete" issue might have been the tipping point - presumably some restriction on not being able to work for PP clients or in a particular area once he had left - but it's difficult to see how this could have been enforced without it being a restraint of trade. There will be a few of us combing through the transcript on Bailii looking for loopholes.

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By Lutondata
14th Jun 2018 11:41

Cake and eat it, Mr Smith? You enjoyed all the financial benefits of being a sole trader, but when it didn`t suit wanted new rules to suit you. Hopelly all your expenses will be reworked to zero and you can pay full tax and NI on your earnings when you were deemed employed.

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Replying to Lutondata:
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By tonycourt
15th Jun 2018 17:29

I agree with your sentiment, but I have no doubts that it's Pimlico that are to blame. GS didn't approach Pimlico with the idea of self-employed status, the company created the scheme and sold it to those who wanted to work for it. True the workers benefitted , but I doubt the tax and NI saving is that great, the mantle of villain falls firmly over Pimlico (IMHO)

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By andye
14th Jun 2018 12:00

Not before time this has happened I have watched individuals and accountants abuse the self employed status by hiding behind a Ltd frontage for the past 25 years and to be fair HMRC should have clamped down on this practise. Last time I looked HMRC insisted that to get self employment status you had to have at least 3 sources of income. In my view Pimlico abused this but then again this practise is widespread and indemic. We cannot criticise the likes of Google,Amazon,Facebook and Starbucks for tax avoidence when individuals hide behind the Ltd status to basically get a better tax break

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Replying to andye:
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By [email protected]
14th Jun 2018 12:52

andye wrote:

We cannot criticise the likes of Google,Amazon,Facebook and Starbucks for tax avoidence when individuals hide behind the Ltd status to basically get a better tax break

I think maybe your statement should be stood on its head ..... we cannot blame individuals for hiding (legally) behind the Ltd status to get better tax breaks when the likes of Google, Amazon .......

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By Lutondata
15th Jun 2018 09:20

Not too sure if we can connect professional contractor/freelancers to either Pimlico or worldwide tax dodging corporations? They often work through PSC`s at the request of the client and agency, doing a short term project. Yes, they earn an eye watering amount but then they have the skills that are in high demand. I remember in 2008 when contracts were withdrawn immediatly. If UK PLC wants to stay competitive in needs to attract this transient work force. (Just an opinion)

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By FCExtraordinaire
14th Jun 2018 13:06

This opens challenges by the HMRC to disallow all the PP "self employed" expenses. Additionally that PP should have paid employer NI ? albeit on a lower salary that would have been his remuneration.. The PP lawyers may dispute the financial cost of this decision in some way as it cannot be inequitable and one sided.

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By johnjenkins
15th Jun 2018 10:43

I've said this many times. It is not up to HMRC to stick their noses in employment status. It is a commercial decision between work giver and work doer. The only reason why we are in this mess with employment status (IR35 et al) is Government want more money without putting up basic rate tax. In doing what they are doing they will destroy the small business of this country which will cost them dearly. Having said that Mr Smith should have been advised better, or maybe that was the plan.

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By Mr J Andrews
15th Jun 2018 14:34

So, PP drew 1 -1 . Having had a massive PAYE saving for God knows how many years followed by a gift of a goal by virtue of the Supreme referee and his four touch line assistants ruling.
Smith wins 2-0, having made some great saves too, coupled with the ease of going into the next round with a guaranteed home advantage.
Clearly the timing of the substitute had an enormous impact on the game but surely a yellow or even a red card must go to HMRC for creating so many fouls at the outset.
Somehow I don't think this new MTD technology
is going to help either.

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Replying to Mr J Andrews:
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By tonycourt
15th Jun 2018 17:20

I like the metaphor - however, as a point of order this case had nothing to do with HMRC, tax or NI.

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By tonycourt
15th Jun 2018 17:41

"Many are now calling for clear regulation to aid the confusion over the worker status and gig economy employment. Companies need to understand when someone can be considered self-employed for employment law purposes, as often the tests are not identical as they may be for HMRC’s purposes."

I agree with the sentiment, but not the analysis. The tests are the same for tax and employment law, it's just that each court naturally tackles the tests slightly differently because even judges have differing views. The real difference is that worker status has no relevance for tax and so it's not necessary for HMRC or tax courts to consider limb B workers.

Given that the government didn't run with most of the steps put forward in the Taylor report it seems, sadly, that we won't get legislative definitions beyond the vague ones that exist in the Employment and Equality Acts. Shame.

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By TonyRedondo
17th Jun 2018 14:05

So this Smith want the best of two worlds: the high fees from contracting and the stability, holidays and sick days of permanent workers.

What's the point of this case being brought forward? Both sides paying due taxes to HRMC?

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By AndrewV12
14th Sep 2018 16:23

Wow the plumber actually attended an employment tribunal, other meetings and an employer appeal tribunal.

I have been waiting for around 3 weeks for my plumber to come around and look at my toilet inlet pipe, no joy so far.

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