By Connor Smith, Accountant at Hive Business

You might’ve read about the drama surrounding Uber in the news recently, which resulted in the gig economy company well and truly getting their own taxi paid for out of London by TFL. What does this debate boil down to? Employment. More specifically, are those who drive a car under the Uber app employees, or self-employed? Uber is adamant that their drivers are self-employed, so are therefore entitled to no rights or benefits enjoyed by employees (such as sick pay, holiday time etc). TFL, and indeed the drivers, beg to differ.

We’ve talked in detail about the difference between being employed and self-employed in the past, and most recently discussed how associate dentists are assumed to be self-employed (for the time being) as long as the associate adheres to the standard BDA or DPA model contract

Confusing enough, right?!

How about if you, as an associate dentist, have incorporated your services. This is a director only company, with yourself as the sole shareholder. You pay yourself a tax efficient director’s salary through PAYE. Would you consider yourself an employee of your company?

The answer is not always as black and white as Uber’s logo!

If we get technical and look at the legislation; FRS 102 sets out in Section 1AC.33 that ‘The notes to a small entity’s financial statements must disclose the average number of person employed by the small entity in the reporting period’ under Section 411 of the Companies Act. So, you’re receiving a salary from the company, you would declare yourself an employee in the company accounts correct?

Well, if we now look at Section 411 of the Companies Act, subsection 4a states the relevant annual number of employees is determined by ‘the number of persons employed under contracts of service by the company’. It’s this contract OF service which is crucial here. You can either be employed under a contract OF service, or work independently under a contract FOR service.

Directors of a company are generally appointed by the shareholders to oversee the maintenance and compliance of the company, and guide it forward. For most director only companies, there will not be a formal employment contract in place between the director and the company, and the nominal salary received from the company will purely relate to services related to this direction.

Put it this way – if you were to hire an outside person to manage the running of your company, would they be happy on £600 per month?

This honorarium payment, regardless of the work carried out, implies a director is neither an employee OR a worker (another term to throw in the mix!). It is this assumption that also gives director only companies exemption from Auto Enrolment responsibilities.

So, what is the conclusion of this blog? Now with FRS 102 in place, HMRC are more than ever picking up on the technicalities surrounding incorporation and companies. What for a very long time was the smart suggestion of your mate down the pub (who’d vaguely heard incorporation could save some tax through the grapevine) is now not so simple, which makes the expertise of an accountant more valuable than ever.

If you’d like to discuss incorporation or the best way to structure your finances, get in touch – call 01872 300232 or email us at hello@hivebusiness.co.uk.