Uber could face a nasty VAT surprise – but time is running out

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There could be a nasty VAT surprise in store for the troubled ride-hailing app Uber as reports indicate HMRC is looking into the company’s liability. Some critics, however, are unconvinced by the tax authority’s sincerity.

A central pillar of Uber’s business strategy is classifying Uber drivers as self-employed. This has all sorts of effects: no holiday or sick pay, no minimum wage and, for Uber itself, no VAT liability.

Uber claims it is not liable for VAT because it is only a platform, and does not provide a transport service. Instead, it’s a digital intermediary between self-employed drivers and customers.

There is quite a lot of conjecture over whether the self-employed designation is the correct one.

A landmark 2016 employment tribunal case ruled that two drivers were Uber staff and entitled to holiday pay, paid rest breaks and the minimum wage and the ruling was upheld by the Court of Appeal.

The original tribunal ruling treated Uber’s claim that it’s not a transportation service. “It is unreal to deny that Uber is in business as a supplier of transportation services,” the tribunal ruled. “Simple common sense argues to the contrary.”

Or as one American court put it succinctly, “Uber does not simply sell software; it sells rides”. Despite the unambiguous nature of the tribunal ruling, Uber is appealing and has said it will take it all the way to the Supreme Court.

There’s a lot at stake here. If Uber is indeed a transportation company, it’s liable for VAT, and since the company has insisted for years it’s not liable, it raises the spectre of a hefty sum of unpaid tax. Uber has more than 60,000 drivers in Britain, operating in more than 40 cities and towns. That’s a lot of rides.

Yet HMRC has been strangely inert on the issue. There have been a few rumblings here-and-there of HMRC looking into the matter, but nothing tangible has materialised. According to Jolyon Maugham QC, a tax barrister and founder of the Good Law Project, the tax authority is not applying the law equally.

“I absolutely think HMRC is applying a different rule of law to Uber, certainly different to the rule of law it applies to you and me,” Maugham said. A longtime critic of Uber, Maugham is currently crowdfunding a case against the ride-hailing app because he claims it undercharges VAT.

If Maugham’s hunch is correct, not only will it irrevocably alter the economics underpinning Uber’s business model, tacking on an extra 20% onto the operator’s razor-thin margins, it will lend more weight to those rumbling over unpaid VAT bills concrete.

Time is of the essence, however, according to Maugham. “HMRC need to immediately raise a protective assessment. But their inaction means that the VAT that’s due is lost to the Exchequer due to time limits.”

Maugham said he’s not satisfied with murky reports of HMRC “investigating” Uber’s potential liability. Instead, he hopes to spur action sooner rather than later. Maugham and Good Law Project are about to start a judicial review of HMRC’s failure to launch a protective assessment on Uber’s VAT liability.

Understandably, Uber is cagey on the matter. “Uber fulfils and will continue to fulfil its tax obligations in the countries in which it operates,” a spokesperson told the Sunday Times.

What those ‘tax obligations’ entail could change in the near future. And Uber seems determined to fight against notion it owes VAT. As Maugham reflected to AccountingWEB a few weeks ago, “It’s very easy, if you’re Uber, to shut off access to justice.”

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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23rd May 2019 10:14

When I consider some of the completely spurious VAT enquiries HMRC have launched against some of my clients, this is a total disgrace.

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23rd May 2019 11:19

Uber clearly are a company employing drivers and so the income should be vatable - no wonder this country is in a mess. HMRC are more interested in making SMEs life a misery with MTD.

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to nodrogbir
29th May 2019 14:08

"Uber clearly are a company employing drivers..."

No they aren't.

The court case over status decided the drivers were 'workers' some half-way house dreamed up by the EU. But not employees.

Quite why everyone is so excited about the prospect of Uber paying VAT is beyond me. They won't be. They will be charging VAT and you, the passenger will be paying it.

Yay. More expensive taxi journeys.

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23rd May 2019 13:38

Re the last sentence, yes; I think JMQC was put at risk personally on costs re this recently, so may have had some difficulty here.

It is a trite point that anyone rich (e.g. banks) can win against pretty much any poorer opponent by grinding them into the ground re costs so as to make them concede their case (HMRC are happy to do this too by threatening to go all the way to the SC - where we all know the likely outcome).

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23rd May 2019 13:50

"If Maugham’s hunch is correct..."

'If' is doing a huge amount of work in this sentence...

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23rd May 2019 14:56

It's certainly complicated.

On the face of it Uber provides a taxi service, but then again does Just Eat provide food? I wouldn't way so.

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to sculptureofman
24th May 2019 07:36

Just Eat is the middle man between you and an established take away. You can call the takeaway direct. Uber is the middle man between you and an Uber driver.

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to Rammstein1
24th May 2019 10:29

Agreed, but in Manchester at least, Uber drivers often turn up in taxis with the name of a local cab firm on the side so it appears the drivers work for various firms.

This is of course a problem unique to the UK, which would be solved by lowering/abolishing the VAT reg threshold

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23rd May 2019 20:21

I’ve been waiting to see some HMRC VAT movement on this case since 2016 and find it very strange that they have been so quiet. The VAT man is normally more aggressive on these issues. It’s not like direct tax that enter into negotiations and agreements.

There needs to be equal treatment of big and SME businesses, it’s really unfair.

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