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The legal definitions of workers, employees and employers in Britain urgently need to be revised to prevent tech companies from minimising their tax bills and avoiding having to provide worker protections, MPs heard on Monday.

“We can’t have the Uberisation of the British economy,” said Jack Dromey, the Labour MP for Birmingham, referring to the car-booking app that is fighting in court not to treat its drivers as “workers” and pay them the minimum wage and holiday pay.

Senior tax accountants, lawyers and academics told the all-party parliamentary group on responsible tax that the UK’s approach to the gig economy is “seriously outdated”. Mark Groom, a partner at Deloitte, said that Britain’s legal definitions of employment are “broken”.

“We have to ask whether we have got the definition of workers right. Should it be about substitution, or should it be about control [of workers by a company]?” he said.

Jolyon Maugham, an activist tax barrister who has taken Uber to court over its approach to VAT, told the panel that “businesses are being constructed around the opportunity to shrug off tax costs and employment protections, and to make enormous profits, because [the rules around employment and tax statuses] are very badly drawn”.

“VAT, NICs and employment rights all hinge on employment status. Legislation around this was formed in the 1890s. We have not tested whether [these rules] remain relevant. Tax laws will remain in a terrible muddle while these are unexplored.”

He added: “By being slow to act we create a sense that the establishment is not interested in going after big tech companies. Good employers who pay their taxes are being driven to the wall as they cannot compete. We will end up in a world in which no one can offer protections for workers or pay their taxes.”

The hearing focused on Uber, responsible tax practices and the gig economy, but other companies mentioned included McDonald’s, and whether it is incentivised to employ workers on a part-time basis, Airbnb, the room rental app, and Deliveroo, the food delivery app that last week successfully fended off a demand from London couriers for union recognition and workers’ rights.

Deliveroo argued that its couriers are self-employed because they have the right to “substitution”, or the ability to ask someone else to deliver food on their behalf.

Potential solutions discussed by the panel included clamping down on lawyers who deliberately “misrepresent reality” when drafting contracts for companies. “I think that is a very important ethical issue for the Bar Standards Board and should not be permissible,” Mr Maugham said.

The MPs also considered whether to update Britain’s tax system so that companies do not avoid hiring full-time employees in order to reduce their NIC liability.

Margaret Hodge MP, who chairs the group, said it would soon draw up recommendations on how to deal with the challenges posed by the gig economy to the tax system.

Uber said: “Drivers who use our app provide transportation services to passengers and will be registered for VAT if they meet the threshold set by government. This has been the case across the taxi and private hire industry for decades. Black cab drivers, and apps they use, operate in exactly the same way.”

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