HMRC remains in neutral on Uber's VAT question

Uber HQ in San Francisco
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The clock is ticking for HMRC to act if it ever hopes to pounce on Uber’s disputed VAT bill.

It’s been a tough year for Uber. The Silicon Valley unicorn’s founder, Travis Kalanick, was ousted after numerous gaffes, it had its license revoked to operate in London by TfL, and it has faced numerous legislative setbacks.

Of concern here, however, is an employment tribunal judgment which said Uber is supplying transportation services. It’s a decision that’s been backed by an advocate general at the European Court of Justice, and Jolyon Maugham, a specialist tax barrister.

Les Howard, a frequent AccountingWEB contributor and VAT expert, agrees with this assessment, too: “The question is: are they supplying transport services? My view is that they are. It follows therefore that there’s a VAT liability.”

If it is indeed the case, it has serious implications for the ride sharing service’s tax bill. It means that Uber should be charging VAT to customers and paying it to HMRC.

As Maugham pointed out on his blog, “that’ll be true not just now, but for the whole period for which Uber has operated in the UK”. Uber has been in the UK just north of four years. Uber’s annual VAT bill could be in the hundreds of millions.

But HMRC could be running out of time to act, Maugham told AccountingWEB.

HMRC can, of course, collect any unpaid taxes -- but the law imposes a limit on how far back in time the taxman can go. In the case of VAT, that limit is a maximum of four years. “There’s a strictly limited time period,” Maugham explained. “If you don’t raise it in that period, you lose the ability to challenge them.”

Given these time statutory limits, it’s standard procedure for HMRC to raise what’s called a “protective assessment”. As Maugham explains: “You raise a protective assessment when time is about to run out.”

The indication is that HMRC hasn’t done this in the case of Uber. The tax authority, of course, doesn’t discuss individual cases, and could be conducting a covert investigation. But if they are, then they are hiding it well.

And Uber hasn’t heard a peep, either; an Uber spokesperson told the FT that HMRC has “never opened a formal investigation into its approach to VAT” nor has it received a protective assessment letter.

“It’s absolutely remarkable to me that there’s a very strong possibility Uber has a VAT liability and HMRC are failing to protect the public purse by investigating it,” said Maugham. “If they’re liable, they will get away with it because HMRC hasn’t raised a protective assessment. That’s a matter of profound concern.”

If HMRC does swoop, and it turns that Uber does owe a big VAT bill, Les Howard is concerned about the “knock-on effects” it could have.

“It would affect the taxi sector. Because where taxi firms and drivers engaged with Uber, if Uber’s affairs are changed, all those drivers have to redo their tax returns. I don’t know how that would work.

“I saw a VAT return of an Uber driver yesterday. I don’t fancy figuring it out. You’ve got all the knock on of: are they on the flat rate scheme or not? Have they bought or sold cars or not? The contractual point is there, too: Could they sue Uber? There’s a large knock on effect.”

About Francois Badenhorst

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

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10th Nov 2017 17:15

Jolyom Maugham is an opinionated dick in my opinion. And I do love Les, but describing him as a VAT expert is stretching things a bit, to my mind. He's frequently wrong, and I think he's wrong in this instance.

The employment tribunal deciding that the substance of Uber's operation is that they're providing a transport service, such that the drivers are workers, is irrelevant.

The point is that they're not employees. They're workers, which doesn't preclude them being self-employed.

For VAT purposes you need to determine who is supplying what to whom.

If you examine Uber's ToC's they're providing you with an app for free. You can then use that app to say I'm here and I want somebody to take me there. Uber tells me how much it'll cost me, which the app determines based on availability and distance/expected journey duration.

Meanwhile, Ahmed is nearby swanning about in his Toyota Prius, and he's got a different app. His app tells him where I am and where I want to go and what I've agreed to pay. He taps a little button in the app to say "I'm having that" and off he swans to go pick me up.

Now, of significance here is that it's Ahmed's Toyota Prius that I'm getting into. He either owns it or leases it. But Ahmed taxes it and insures it, and it is him and not Uber that is the party with the right to take me on a white knuckle ride from Arnos Grove to Wanstead.

Based on the T&Cs, I know that Uber will take my taxi fare out of my Paypal account. They'll charge Ahmed a fee (which is a reverse chargeable B2B service - I must remember to tell Ahmed about this, when I see him next), and pay the fare, less their fee, over to him.

I am clear that it is Ahmed and Uber that is supplying me with the taxi ride. After all, it was Ahmed, and not Uber, that I was screaming at to slow the fulk down for the entire journey, while my life flashed before me.

It's Ahmed that I'm going to be suing for my new found nervous disposition, and not Uber, despite Ahmed's new found worker's rights.

At least, that's my take on the issue.

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10th Nov 2017 14:37

I thoroughly enjoyed reading that on a Friday afternoon

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to Greenslades
10th Nov 2017 15:52

Yes. Francois does write a very good piece.

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10th Nov 2017 15:00

I don't know how many vehicles Uber own but it could, in theory, be none at all without impeding their operation.

They would then be the only company whose chief supply is transportation but who own no means of transport.

The truth seems to be that these stories are stoked by people wanting to see Uber fail and I'm not really sure why. Presumably their disastrous PR over the last few years has something to do with it.

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10th Nov 2017 15:07

But it is more complicated .......
Ahmed may or may not be VAT registered - some are some are not - and you pay him £24 for your trip. If it is a business expense how do you get you £4 VAT back?
a - just claim it assuming Ahmed is registered? Naughty naughty.
b- just bear the £4 as your cost? - even though Ahmed has paid it to HMRC
c - look at the VAT invoice that Uber has sent you? However hard you look you won't find it because they didn't send you a VAT invoice - at least until a while ago their system couldn't do that, maybe it has changed recently.

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to Comptable
10th Nov 2017 15:51

The proper person to ask for a VAT receipt is Ahmed. You take your chances on whether or not Ahmed is VAT registered, just as you do with a black cab; where it is also the gross price that is always based on the TfL agreed rates.

The same is true of any taxi. The local authority agrees the rate (which is gross) and VAT registered cabbies and firms use the same gross rate as those not VAT registered.

It's not a phenomenon unique to Uber.

Are you Jolyom Maugham?

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to Comptable
10th Nov 2017 15:54

You can now print invoices - it states
"invoice issued by Uber on behalf of Ahmed"
with Description/Tax point/Net amount/Gross amount
and underneath "VAT not applicable, below the VAT threshold"

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to Chipette
11th Nov 2017 17:11

My understanding is that some Uber drivers are registered and some are not.
Can you print an invoice issued by Uber on behalf of Ahmed's brother (who is registered) which says that VAT is applicable and which gives the brother's VAT reg no?

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11th Nov 2017 07:44

There has always been much confusion in some minds about the VAT status of Taxi Firms and the relationship with their drivers. I remember similar discussions about a local firm we were dealing with about 20 years ago.
What we see here with the worker status is an interesting new status that gives self employed people workers' rights. If this were rolled out formally then self employment would be less attractive in many spheres as currently it can be used as a way of circumnavigating employment legislation.

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11th Nov 2017 11:17

and how are these drivers expenses in employment to be calculated? deduct total cost or percentage of the cost of the car or a capital allowance?
our judges seem to have taken on a role of outlawing any scheme that HMRC or other agencies dislike simply on the basis of loss of revenue to the exchequer

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to carnmores
12th Nov 2017 11:36

They are not in employment but they are entitled to certain things. They still qualify as self employed and so should still submit SA in the normal way. Unless the judges are saying they are employees (and in my view they are not) there are plenty of self employment markers to retain that status.

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11th Nov 2017 17:14

It is just another area where a tax system designed for the era of the horse and cart is trying to be made to work in the 21st century.
Now that is a topic that could run.......

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to Comptable
13th Nov 2017 10:38

I think that you'll find that the VAT regime post-dates the horse and cart. The 6th directive, which sought to harmonise VAT within Europe, came to fruition in 1977.

If the UK didn't have such a generous registration threshold, there wouldn't be any issue. Ahmed would be VAT registered. Indeed Ahmed might need to do that very thing some time after 22 November.

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12th Nov 2017 12:02

thanks CMWB so even if they are still s/e i presume that they will fall under definition of a worker for auto enrolment , whole thing is a mess

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to carnmores
13th Nov 2017 13:29

That is correct. And, in that context, it is worth remembering that active members of LLPs may satisfy the definition of worker.

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