When is a taxable person not a person? Very often, actually. Taxable person is one of those terms of art that specialists use all the time, but which can be confusing for people who don’t spend their time thinking about VAT regulations.
‘Taxable person’ designates responsibility for charging, collecting and filing VAT. That designation can refer to a sole trader or professional, but often the taxable ‘person’ is actually a business.
The meaning of ‘gig worker’
As the current debates over the precise nature of the gig economy reveals, the question of who, precisely, is a taxable person is not merely a theoretical issue.
For instance, the UK Supreme Court has upheld a ruling that Uber drivers must be classified as employees of Uber and not as independent contractors. (A Dutch court recently made a similar finding regarding Deliveroo gig workers.) The ruling has important VAT implications. If gig economy workers are sole traders who are independently contracted to digital platforms, then they can be considered taxable persons and thus potentially liable for VAT.
Whose VAT bill is it, anyway?
The VAT consequences are considerable. If the gig economy worker is legally considered an employee, then the responsibility for VAT may lie with the company itself.
Indeed, Uber had acknowledged that were the UK Supreme Court to rule against them, as it now has, the company may be legally required to pay VAT retrospectively. The ruling also has significant consequences in terms of employee benefits that Uber drivers are entitled to.
Contracts under scrutiny
As the recent court findings demonstrate, the legal basis for determining who is a taxable person cannot always be decided on the basis of the contract between the worker and the company.
The courts looked at the nature of the employment relationship and applied certain legal tests to determine whether the specified gig workers should legally be considered workers or self-employed contractors.
In other words, the courts found that despite what a plain reading of the contract may imply, the actual nature of the relationship between the gig workers and platforms can legally be defined as an employment relationship.
Of course, the question of how the broader gig economy should be defined is far from settled. Unsurprisingly, UK authorities are looking to introduce new regulations to more effectively regulate the gig economy.
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