Encouraging Cycling through the Tax System

Yesterday, alongside Chris Boardman and British Cycling, I launched three proposed tax reliefs, drafted at the invitation of the Department for Transport, to increase the numbers of people cycling to work.

You can read the press release here; and the tax reliefs, their design, purpose and illustrative costings here.

Please do pile in; let me know in the comments section below what you think of the proposals – their design, purpose, intention, costings.

The Uber decision: a straw in the wind

You can read the decision of the Employment Tribunal in Uber here. What I want to flesh out is what, at least as it seems to me, the Decision does and doesn’t do.

The Decision will not fix our malfunctioning labour market (see here for my primer). That malfunction stems from two systemic flaws in our law. First, in our tax law – which imposes on relationships that are economically equivalent substantially different burdens to tax. Second, in our employment law – which imposes on relationships that deliver to the engager of labour the same end result substantially different employee protection burdens.

As I’ve written elsewhere, we should be concerned about these flaws. Businesses worth billions of dollars are constructed to exploit the arbitrage opportunities they create. These arbitrageurs can drive out ‘good’ business actors. And the arbitrages can deliver to shareholders and customers unearned subsidies borne by taxpayers and workers. These are very material failures in capitalism, they’re not news to Government, and it’s pretty abysmal that Government has failed to respond.

The flaws cannot be resolved separately. They must be resolved together. Government is constantly (albeit tentatively) reviewing the tax flaw. Separately it is currently reviewing the employment law flaw. But there is no review that examines them together. And whatever the quality of those separate reviews their separate outcomes will not, because they cannot, resolve the malfunction. Wearing a monocle will address certain consequences of myopia but you’ll still be lousy at football.

The Uber Decision demonstrates a muscular judicial response to the employment law flaw. Such a response will be familiar to those of you who have read me on how judges have responded to tax avoidance. It should be applauded. But the Uber decision is fact specific – it has no direct read across to any other engager of labour. And, unlike in the tax avoidance sphere, rule arbitrage in the employment sphere has yet to draw any meaningful response from our legislators.

As to Uber itself, the consequences of the Decision must be examined through two lenses. One which looks backwards: what does the decision mean for the past? And one which looks forward: what does it mean for the future?

As to the past, the Decision is fact heavy and this, to a lawyer, makes a successful appeal unlikely. It’s not perfect: it majors, and compellingly, on the true factual characterisation of the relationship between Uber’s UK entity and drivers. But its analysis of the legal consequences of that factual characterisation is thin. (Indeed, it is largely to be found in a single paragraph, 94). However, this on its own is unlikely to enable the Employment Appeal Tribunal to overturn the finding that the driver is a worker. The Decision could, however, be more vulnerable on the question when the driver is a worker – at all moments when the Uber app is turned on, or only when the driver has a passenger?

If you assume the Decision survives the inevitable appeals, it will (at least until Uber changes its arrangements) deliver some employment law benefits to the affected workers. The most meaningful of these is likely, in practice, to be holiday pay. But it could also land Uber with a very substantial bill for unpaid NICs.

“Could” because the Decision only concludes that drivers are ‘workers.’ It does not examine whether they are also ’employees’, a subset of workers. If they are found, in what would have to be separate proceedings before a specialist tax tribunal, to be employees then, assuming the 40,000 drivers engaged by Uber earned an average of £600 per week, Uber would accrue a NICs bill of over £13m for every month it has operated – or continues to operate – these arrangements.

Will HMRC take the case? There’s ample reason to think it should: watch this space.

As to the future, even the Employment Tribunal recognises that Uber may adapt its arrangements to seek to avoid these tax and employment law consequences going forward.


I would expect these adaptations to look, in practice, like Uber reducing the control that it exercises over drivers. I do not understand Uber to be contemplating engaging drivers as “workers” going forward. So the gain for drivers is likely only to be temporary.

Of modest and temporary effect, and Uber specific. The Decision is little more than straw in the wind.

Pulling down the shutters at HMRC

How should the ‘elites’ address mistrust? And the Government Departments thought soft on them? Pull down the shutters – or let the light shine in?

Nowhere are these question raised nowhere more sharply than in the sphere of tax dodging – avoidance and evasion – by wealthy individuals and powerful corporates.  We are worried – and we are right to be worried. The best that can be said about our tax system is that it does not function as it should. But the worst is that HMRC fails to apply the law in an even handed fashion: it is, to borrow Ed Miliband’s compelling phrase, strong with the weak but weak with the strong.

Many of us can understand that responsibility for the misfiring international tax system does not lie entirely with our own Government. But the idea HMRC pushes hard against small businesses struggling to turn a profit whilst failing to collect tax from the likes of Google and Facebook is deeply corrosive. And only yesterday the National Audit Office reported that, over the last five years, HMRC had closed 72 fraud investigations into high net worth individuals with only two prosecutions and one conviction.

It’s a brave Government that ignores the question ‘why should I pay more taxes when he doesn’t pay his?’ Brave or – given that we check less than 2% of personal self-assessment returns – stupid. And greater transparency is an important – and perhaps the only – way to answer it; greater transparency alongside meaningful scrutiny.

Last month the Supreme Court handed down a decision in the Ingenious case. The case concerned a briefing given in 2012 by the then Head of HMRC, Dave Hartnett, to Alexi Mostrous, a journalist at the Times. During the course of it, Mr Hartnett made some corruscating remarks about Patrick McKenna, a then high profile promoter of tax avoidance schemes. And those observations drew upon confidential material held by HMRC.

You can read the remarks at paragraph 10 and 11 of the decision. They disclose nothing about the tax affairs of Mr McKenna. Or, indeed, of anyone else. They merely signalled that HMRC disapproved of the arrangements promoted by Mr McKenna; that very, very substantial sums of money were at stake; and that HMRC anticipated that it would establish that those arrangements did not work.

The Supreme Court found that, in making those remarks, HMRC had breached its duty of confidence owed to Mr McKenna. Even though, only weeks earlier, the specialist Tax Tribunal had found that Mr McKenna had promoted tax avoidance arrangements; that very, very substantial sums of money were at stake; and that the arrangements did not work.

In practice, such arrangements can be difficult even for highly skilled professionals to differentiate from ‘good’ tax mitigation. Individuals without professional expertise have little choice but to rely on the advice given to them by their advisers. And their advisers are usually or often financially incentivised to encourage their clients to invest.

The consequences can be disastrous. We know from numerous media reports (see, for example, this) that a number of hugely successful footballers face bankruptcy as a result of participating in Ingenious schemes.

Even in the tax field, some stuff is beyond sensible argument.

HMRC must be able in the public interest to communicate with those it serves.

It must be able to warn taxpayers off avoidance schemes that it considers dangerous, as it sought to do with Ingenious and film schemes more generally.

It must be able to address public concern about possible sweetheart deals – for example, this story that Bernie Ecclestone was able to settle a £2bn tax bill for £10m. It must be both free to engage with and forced to confront legitimate Parliament scrutiny of sweetheart deals.

It must be able to address misrepresentations by powerful individuals or corporates. Tax conduct is reputational and wealthy taxpayers and corporates do publicly misrepresent their tax behaviour. Where these representations damage public trust in HMRC, HMRC must be free to counteract them.

I intend no criticism of the Supreme Court – it addressed a narrower question – when I say it is a mistake to conceive of taxpayer confidentiality as an absolute value to which the public interest must genuflect. Like all values it must be balanced, here with the importance of maintaining public confidence in HMRC. Should this remark be thought controversial I would invite putative critics to grapple with the rule that compels the full public disclosure of the relevant personal financial affairs of individuals of anyone seeking to appeal against a decision  of HMRC.

To strike that balance, it is now clear that Parliament must legislate. It must explicitly authorise disclosures of confidential information to protect HMRC’s assessment of the public interest. Parliament can, should it wishes, make that assessment justiciable before the courts by listing a range of factors to which HMRC is to have regard in reaching that assessment. Those factors could include the obligation to have regard to the objectives listed above – and also the desire, where consistent with their achievement, to preserve taxpayer confidentiality.

But the status quo, after the Supreme Court’s decision in Ingenious, is unsustainable. It will damage HMRC’s ability to raise tax, it will foster public distrust in the institutions of Government, and it will inhibit Parliament’s already poor scrutiny of a field of proper public concern.