Independent VAT Consultant
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Uber faces £1.5bn VAT crisis

HMRC is reported to have raised a £1.5bn VAT assessment for Uber in the UK. Neil Warren investigates how Uber is likely to respond.

6th Nov 2020
Independent VAT Consultant
Columnist
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Who's waiting for accountancy's version of Uber?
iStock_Uber car_Michael Krinke
Who's waiting for accountancy's version of Uber?

According to recent press reports HMRC sent Uber in the UK a £1.5bn VAT assessment. 

The tax bill for the internet ride-sharing giant arrived at a time when HMRC enjoying some success at increasing the tax yield of businesses that sell services where the internet is involved.

My recent article VAT and trading online: Part 1 reported that VAT is now payable on 100% of payments received through both the Only Fans and Any Answers Ltd websites, rather than the net commissions retained by the site owners.

But these victories would be small beer for HMRC if the same outcome were to be applied to UK taxi rides carried out through the well-known Uber app. Is the department aiming for an internet hat-trick?

Uber business model

The Uber business model is straightforward: you press a button on your phone and a car arrives. The driver already knows where you want to go.  As the passenger you do nothing else other than be polite to the driver, and wear a face mask of course. The payment for your fare comes out of your bank account as an electronic payment to Uber that has already been set up.

Whether the driver is an employee, a worker, or self-employed is a different but related question, which was addressed by the UK Supreme Court in July in Uber BV and others v Aslam and others. The judges had to decide whether the Uber drivers are “workers” (as opposed to an employee or self-employed) and if they were, what constitutes their working time. The judgment has not yet been released.  

In a related point Uber Inc just won a major victory in California over a vote on “proposition 22”. This is an exemption from employment law for Uber drivers and other gig economy workers, which permits those workers to continue to be treated as independent contractors rather than as employees.

The extra employment costs for Uber, Lyft and other gig-economy companies would have undermined their business models.

VAT challenge

As with many VAT issues, including the OnlyFans and Any Answers Ltd cases, it comes down to the simple question: “Who is supplying what and to whom?”

Is Uber acting as an agent for the drivers, putting work their way? If Uber is based in the UK, this agency commission will be standard rated for VAT.

If Uber is supplying passenger transport in the UK, rather than the self-employed driver, the gross fare paid by the passenger to Uber is standard rated. The place of supply for passenger transport is where the journey takes place.

Latest developments

Uber’s trading has been affected by the pandemic but the VAT problem has not gone away. According to the Good Law Project, Uber’s US accounts confirmed that HMRC has now assessed the company for VAT on gross fares “both prospectively and retrospectively.”

The link to accounts from the Good Law Project website seems to be to Uber Technology Inc’s report to the Securities and Exchange Commission for the quarter to 30 June 2020. On page 38 of the 260-page document it says:

“For example, the Company is involved in a proceeding in the UK involving HMRC, the tax regulator in the UK, which is seeking to classify the Company as a transportation provider. Being classified as a transportation provider would result in a VAT (20%) on Gross Bookings or on the service fee that the company charges drivers, both retroactively and prospectively.”

HMRC powers

The Good Law Project says that HMRC “has assessed Uber to VAT on fares” – presumably this statement is based on the paragraph quoted above.

Does this mean that Uber has appealed to the first-tier tribunal and we are awaiting a hearing date?  We are probably not at that stage yet.

Years of litigation

If Uber has been issued with an assessment by HMRC, it will almost certainly mean that we are at the beginning of a long litigation process. These processes often take many years.

VAT enthusiasts will have noted that litigation in the case of HMRC v Newey was first heard in 2010 and has only recently been concluded (hopefully) over 10 years later. When you think that the average length of a professional footballer’s career is eight years, this case lasted a lot longer than that.

What about Brexit?

I wonder whether HMRC might have delayed issuing a final assessment to Uber until after the end of the transition period for the UK leaving the EU on 31 December. It is possible that HMRC has only issued protective assessments so far to protect the four-year period that relates to past errors on VAT returns.

Would a post 2020 assessment mean that the litigation process will only be relevant to the UK courts? The House of Commons Library confirms that any cases pending before the Court of Justice of the EU (CJEU) at the end of the transition period will fall within the CJEU’s jurisdiction until they are finalised, and this includes decisions on appeals.

It is not entirely clear whether an assessment that relates to supplies made in the UK when the country was still a member of the EU (or in the transition phase) could still be challenged all the way to the CJEU.

Conclusion

To get back to the basic question, is Uber supplying the taxi ride or the services of the self-employed driver?

Two issues to consider are the contractual arrangements between the various parties and the perception of customers. Does a typical customer consider he is dealing with Uber or the driver when he arranges a booking? Based on the Only Fans and Any Answers outcomes, HMRC will be feeling confident it could enjoy a bumper VAT payday.

But will any of us still be working in tax when it is finally confirmed one way or the other?

Replies (1)

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By Steve99
06th Nov 2020 16:04

HMRC's vat notice 700/25 taxis and private hire makes good reading on the subject...

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