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Uber faces court battle over VAT bill

31st Mar 2017
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Balloons at a pro Uber rally

Tech giant Uber has been threatened with UK court action over its approach to VAT, which campaigners feel are taking the UK taxpayer for a ride.

While firms providing transport services should charge the standard rate of VAT for each journey, Uber currently accounts for VAT on the basis that it is a business-to-business brand supplying drivers with the service of introducing them to customers – in other words a technology firm rather than a transport provider.

However, this is a stance tax barrister and director of the Good Law Project Jo Maugham believes is not based in reality, and deprives the government of potentially hundreds of millions of pounds a year in lost input taxation.

VAT receipt claim

The Good Law Project (GLP) has started the process of suing the tech firm for a VAT receipt for an Uber journey Maugham took earlier this month, and has delivered a letter before action to Uber as a precursor to legal proceedings.

A GLP crowdfunding campaign is currently raising funds to force its claim to the High Court, and at time of writing is £8,000 short of its £75,000 target.

If Uber issues the receipt it would be liable to account to HMRC for that VAT, and by extension liable to account for VAT on all fares, leaving it with a substantial liability for which it is not currently accounting.

According to Uber’s latest accounts filed with Companies House, in 2015 the firm took more than £115m in fares, which would have raised £23m for HMRC in VAT (if it had been charged).

However, some analysts believe Uber’s UK revenue could actually be around £1bn, but this is disguised by its multinational accounts structure.

Damaging trust in the establishment

According to Maugham the campaign mirrors people’s belief that the government does not behave fairly or treat all business equally in such cases, damaging trust in the establishment.

“In a better world we would be confident that HMRC was testing that proposition and adjudicating upon it,” Maugham told AccountingWEB earlier this week, “but there is lots of evidence that HMRC takes a soft line with big US tech companies, so I don’t think we can be confident”.

A statement from HMRC said: “We don't discuss identifiable taxpayers. Everyone has to pay the tax due under the law and we make sure they do”.

A spokesperson for Uber told AccountingWEB: “Drivers who use the Uber app are subject to the same VAT laws as any other transportation provider in the UK.”

it’s not easy to see why Uber has been permitted to operate a tax on contracts”

In October 2016 Uber lost an employment tribunal, which ruled that it was supplying transportation services and that its drivers are considered workers and entitled to holiday pay, paid rest breaks and the national minimum wage.

It has been argued that the current situation is part of the pendulum effect frequently seen in business and transaction-based taxation, with the government scrambling to catch up with new services, and eventually legislation will catch up with Uber and similar firms – but Maugham does not agree.

“Here the VAT principles are relatively settled”, said Maugham. “We’ve known for a long time that VAT is not a tax on contracts, it’s a tax on supplies, and supplies are not always identical to contracts. So it’s not easy to see why Uber has been permitted to operate a tax on contracts rather than, at least if the employment tribunal is right, a tax on supplies”.


Replies (5)

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By David Heaton
31st Mar 2017 10:36

Much as I admire Jolyon Maugham, I have to wonder about the wisdom of this exercise. I've never used Uber, as it doesn't operate here, but family members have, in bigger towns, in the UK and US.

If Uber is indeed a transport business, it should charge and pay VAT, obviously, but is it really?

Does anyone seriously believe that HMRC, and particularly the notoriously uncompromising VAT compliance arm, in the current yield-driven environment, would not be taking on Uber itself if there was a decent argument that £millions of VAT was due?

When I take a cab to the station in my town (no Ubers), I call a central number and the despatcher puts out a call to all the dozen or so cabbies in the area. A self-employed driver, in his/her own car, then turns up, delivers the service, takes my fare, and pays a % (or a taxi radio hire fee, maybe) to the business that runs the local phone/radio operation. No VAT, because his turnover is below £83k. It seems to me that Uber is doing the same job as the central taxi number in town, just doing it online, from overseas, and more effectively. OK, there will be contractual differences: the discussion of the contracts in the Uber tribunal case is very interesting. The money flow is also different. But, in principle, it looks like a group of self-employed owner-drivers offering taxi services, buying in a marketing and coordination service. They are 'workers' in employment law terms because they commit to a personal service, but they provide the car and can choose not to work by switching the app off if they have no current booking, so they would seem to be self-employed for IT, NIC and VAT. The tribunal didn't think otherwise, as far as I can tell, even if it was sceptical about Uber not being a transport undertaking: it found that they are workers, not employees.

Good luck with obtaining the VAT receipt.

Thanks (3)
Replying to David Heaton:
By [email protected]
31st Mar 2017 11:21

I'm inclined to David Heaton's view. But, there is a parallel with a well-known plumbing company in London called Pimlico Plumbers. The plumbers who operate under the Pimlico Plumbers identity have until now been classified as self-employed, but a recent court judgement has ruled that they are employees. That said, the "self-employed" plumbers have always issued VAT receipts. Interesting.

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By DMGbus
31st Mar 2017 11:47

As a consumer I perceive Uber as providing to me Taxi services.

Therefore I regard Uber as liable to account for VAT on fares that it collects for the provision of taxi services.

As it happens ReceiptBank got me looking into this as a Uber receipt for taxi servioce uploaded to ReceiptBank resulted in ReceiptBank showing a VAT element.

I did, in view of the above ReceiptBank matter, have eMail communications recently on this matter to/from Uber. Initially Uber were not co-operative, but eventually after I mentioned raising the matter with UK tax authorities if they declined to answer my VAT question they did make a reply.

Uber's stance is that they are some sort of intermediary not actually providing taxi services, presumably it accounts for VAT on commision / fees charged to its employee (*) drivers.

(*) per recent Court ruling Uber drivers have employment rights.

I fully expect that Uber disputes the above and may have comprehensive small print contract terms that assert that it does not provide taxi services. If those terms are not made known to consumers of taxi services that it facilitates then it weakens its argument that it is not providing taxi services.

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By Jack Spratt
31st Mar 2017 12:50

The theory with Uber is that they bill you on behalf of the drivers. So you get a bill for say £24 and a receipt for that.
But some of the Uber drivers in London are VAT registered and some are not. If you are not VAT registered you don't care. But if you are VAT registered and your Uber ride is a business expense it matters to you. Because IF you can get a VAT receipt from a VAT registered driver your ride costs you £20. But if your driver is not VAT registered your ride will have cost you £24.
I am pretty sure Uber's system can't cope with this.
And I am pretty sure this is because the Uber software people in California can't understand that VAT and US state Sales Tax are fundamentally different. Or maybe they don't care.

Thanks (1)
By Tom Herbert
04th Apr 2017 11:47

Update from The Good Law Project:

"Uber has now refused us a VAT invoice. We will issue proceedings before the end of the month."

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