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Uber shakes up the taxi industry again

14th Aug 2023
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Uber has always been a disruptor: originally, because it brought us a new way of hiring a taxi - one which many people found cheaper and more efficient than the old way (“ring a number and hope a taxi turns up eventually”). However, one reason Uber was cheaper appears to have been that it was not accounting for the correct amount of VAT … or was it?

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Agents

Uber originally claimed to act as agent for all its self-employed drivers. This enabled it to account for VAT on its commission charge, rather than on the amount charged to the passenger. Then the drivers won a ruling that they were “workers”, significantly weakening the agency argument. After that, Transport for London won a ruling that the contract in a taxi transaction had to be between the passenger and the “operator” (Uber), as opposed to the driver. This appeared to make it clear that for VAT purposes Uber was supplying services as principal to its customers, which would require VAT to be accounted for on the full charge to the passenger. Uber has, apparently, paid an amount to HMRC in respect of historic VAT.

High Court persuaded

Uber has recently persuaded the High Court to declare that the contract in a taxi transaction must be between the operator and the passenger in all public taxi transactions nationwide (except, possibly, in Portsmouth – but that is a story for another day). This would appear to level the playing field and require all taxi firms to account for VAT on the charge to the passenger, whatever their purported structure … unless, as Uber is reported to be arguing, they are “travel agents or tour operators”.

Really?

Yes. If Uber is able to take advantage of the special VAT scheme called the Tour Operators’ Margin Scheme (TOMS), it will only have to account for VAT on the mark-up it makes after paying the taxi driver. If Uber is successful in this argument, doubtless all other taxi firms will be able to make the same claim and we will return to the status quo ante.

Is Uber going to win?

If so, it faces two significant hurdles. The first is to show that the passenger is a “traveller”. At first glance this might seem easy to argue (isn’t anyone moving about in a vehicle travelling somewhere?) but it may be that “traveller” here means something more, perhaps someone going on holiday, or making more than a local journey. The second hurdle is to show that taxi rides are commonly supplied by travel agents or tour operators, which maybe they aren’t. HMRC may have other arguments to put forward too.

Whatever transpires, Uber is shaking up the market again.

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