The Court of Appeal has overturned a High Court ruling concerning VAT obligations on taxi fares for private hire vehicles (PHVs) outside London. This significant development impacts Uber and the entire UK taxi industry.
Background of the Dispute
In 2021, a court ruled that Uber drivers should be considered workers, subjecting their fares to VAT. This ruling extended to other private hire operators in England and Wales, threatening a 20% fare increase, which would significantly affect passengers and small taxi firms.
Key Players and Legal Manoeuvrings
After losing an initial challenge in London, Uber launched a landmark case against Sefton Borough Council in Merseyside, arguing that contract clauses would impose VAT charges on all UK taxi operators outside London. Several private hire firms, including Veezu and Delta Merseyside, intervened, warning of the negative impact on the industry and passengers.
In July 2023, the High Court ruled in favour of Uber, restricting individual companies’ freedom to determine their VAT policies. Veezu and Delta Merseyside appealed, leading to the Court of Appeal’s recent decision to overturn the High Court’s judgment.
Implications of the Court of Appeal’s Decision
The overturning of this decision is a significant victory for private hire businesses outside of London. These companies are now exempt from enforcing VAT on their fares, allowing them to continue business without incurring additional expenses. This ruling prevents fare hikes and benefits passengers, especially during rising living costs. While Uber remains liable for VAT on its fares, the ruling creates a regulatory divergence between London and the rest of England and Wales, posing further legal and operational challenges for the company.
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Broader Impact on the Taxi Industry and Its Riders
The ruling highlights the ongoing tussle between regulators, the tax authorities, and PHV operators. HMRC aims to ensure compliance and uniformity with tax obligations. Still, the recent court decision emphasises the need for balance, considering the operational realities of small firms versus large corporations like Uber. The judgement also reflects the government’s awareness of the economic impact on consumers. A consultation is underway to explore alternatives to VAT liability on all private hire trips, pending the outcome of a second consultation on how affected businesses should adjust their operations based on the High Court’s earlier decision.
Future Battles and Considerations
The Uber-VAT dispute with HMRC is far from over. Uber is said to be set to confront HM Revenue & Customs in regards to its VAT payments which now approach £1 billion. This figure has accrued since the tax authority stipulated that the tech giant adds 20% VAT on its fares and delivery charges
Uber, is now of the opinion that VAT should only apply to its profits on sales due to the Tour Operators’ Margin Scheme (TOMS), rather than revenues. Uber said in its UK annual report that their, “Payments do not represent our acceptance of the assessments.” The firm believes that it “will be successful” in an appeal “upon which the full amount of our payments will be returned to us with interest.”
In December 2023, a tax tribunal ruled in favour of Uber’s major competitor Bolt. It concurred with the company’s claim that it should be eligible under TOMS. HMRC is appealing against this ruling. Meanwhile, as mentioned the Treasury is consulting on whether to change VAT rules for private-hire vehicles.
This ongoing battle will shape future legislation and tax policy concerning ride-hailing apps and private hire. The issue of VAT in the taxi industry will likely be influenced by considerations relating to corporation tax and the broader economic landscape. The taxi industry must remain alert and adaptable as more legal clarifications emerge through government consultations.
The Court of Appeal’s decision is a boost for small taxi firms and a benefit for passengers, but creates further divergence in the London market. It also opens the door for further legal disputes and policy reviews. The configuration and operation of the UK private hire vehicle industry continue to evolve due to court judgments, government consultations, and strategic responses from major players like Uber.
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