Uber has announced that it will soon have to start charging its UK customers VAT at 20% after a High Court judgement, pushing up the cost of rides.
A judge has ruled that UK private hire taxi operators must make contracts with their customers. This could have massive consequences for the industry.
This follows on from our previous coverage of Uber, outlining that Uber drivers should be treated as workers, not contractors.
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The Supreme Court’s judgement is still rippling through Uber’s working model
On top of the human rights implications, as well as the effect on sick pay and holiday pay, the ruling has broader implications for the relationship between operators and passengers. Lord Leggatt’s ruling meant that operators were essentially entering into a contract with their customers when they accepted a booking, instead of the passenger having an agreement with the driver.
If Uber had won their appeal at the Supreme Court, then the contract would have been between the driver (a self-employed subcontractor) and the passenger.
Enter the VAT man
Unlike most private hire drivers, Uber is a VAT-registered business. As the relationship has been defined by The Supreme Court as between passengers and Uber, not drivers and the passengers, VAT must be paid on every journey. No wonder Uber founght tooth and nail, taking every chance to avoid this settlement. You can read more about this in our article ‘The Curious Case Of Uber’s £2 Billion VAT Bill’.
“Uber thinks it can tell the private-hire industry what to do!”
An unnamed industry commentator has claimed that, “Since the Supreme Court Judgement, Uber has now appointed itself as a sort of student council representative for the entire private-hire industry.”
A spokesperson for Uber said: “Every private hire operator in London will be impacted by this decision, and should comply with the Supreme Court verdict in full. All operators will need to carefully consider the court’s judgment and take steps to ensure that they comply with it, including considering whether any changes to their way of working are required”.
Uber is testing the water outside of London
Uber is now taking Sefton Local Authority to court, seemingly in order to test whether this ruling will be applied outside of TfL’s jurisdiction. This has sparked worry among many in the industry.
Gary Jacobs from taxi and private hire specialist tax consultants, Eazitax has this to say, “We need to look at why the ruling was sought, it certainly wasn’t directly about taxation. TfL has now stepped in and is asking for operators’ trading models as part of their brief… if the endgame is that all drivers are forced to become employed, the operators who actually survive this apocalypse would be Principal for VAT purposes. But this hasn’t happened, yet.”
Right now, Uber definitely have to pay VAT, but it’s unclear if anyone else does
It is important to remember that HMRC and tax tribunals are able to define who is and isn’t eligible for VAT, not local authorities. Each case is also taken on its own merit, which is why HMRC hasn’t and probably won’t comment.
Many would accuse Uber of trying to make their problem an industry-wide issue. They’d likely defend themselves, ironically in the eyes of the black cab trade in London, on the grounds that it’s only fair to have a level playing field and that it should be one rule for all. Either way, private hire operators and app based businesses across the country will be fretting over the outcome of the judgement. Right now, nothing is certain, and only time will tell how this turns out.