Following 2021 High Court Ruling, Uber UK has requested High Court Declaration Proceedings that all 16,000 UK private tax operators are ‘principal’ contractors and liable to charge VAT
Uber Britannia Limited v Sefton Metropolitan Borough Council is set for a hearing at the Royal Courts of Justice on 3 November 2022. This could force operators to start charging 20% VAT for the first time. Uber imposed VAT on its ride-sharing service March 2022 following a December 2021 High Court ruling that it was the principal service provider – and not the driver – of its ride-sharing services.
Brought by Uber, this case will declare if all private taxi operators outside of London (the High Court ruling centred on London Uber licensing status) must follow Uber, and change their operating terms and conditions with passengers. This would mean the operator is providing the taxi service (principal not agent), so making them responsible for VAT. Whilst private drivers working for these operators are generally under the UK VAT registration threshold of £85,000, and so do not charge any VAT, operators will be over the threshold.
The UK government has confirmed last week that HMRC are monitoring the Sefton case.
Uber pleadings to High Court for clarification on VAT on private taxi operators
Uber has commenced proceedings against the Council under Part 8 of the Civil Procedure Rules seeking the following declaration from the High Court:
In order to operate lawfully under Part II Local Government (Miscellaneous Provisions) Act 1976, a licensed operator who accepts a booking from a passenger is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.
The UK government has confirmed last week that HMRC are monitoring the Sefton case.
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March 2022: Uber imposes 20% VAT following High Court employment upheld it as a contractor rather than agent
Ride sharing platform, Uber, started imposing 20% Value Added Tax from 23:55 on 14 March 2022. This followed a December 2021 UK High Court ruling on its drivers’ status as workers rather than contractors. The High Court ruled that it was unlawful for a private hire vehicle operator to act as an “agent” between a driver and a passenger. This upheld a prior Supreme Court ruling from February 2021 that ruled Uber’s business model as unlawful in this respect.
This meant that Uber and other ride-hailing companies, not individual drivers, will enter into contracts directly with passengers and will be held liable for anything that goes wrong with the service. This change in contractual agency relationship means for VAT the principal becomes the ride-sharing platform rather than the driver.
Road-side hailed taxis, which are generally operated by self-employed drivers (such as London black cabs) will mostly remain VAT-free as their drivers are generally below the VAT registration threshold.
HMRC were known to be reviewing Uber’s VAT status, looking to make it charge VAT. Previously, it was the drivers’ responsibility. Since most of them were below the UK VAT registration threshold of £85,000, this meant passengers travelled VAT free.
Since VAT is not separated out in invoices, it is not clear if Uber will pass on all or any of the VAT rise.
The UK launched a gig and sharing economies VAT review last year. This is likely to extend to other areas the deemed supplier VAT responsibility onto platforms that facilitate transactions. This follows the UK e-commerce marketplace obligations of 1 January 2021. The EU and OECD is undertaking similar reform reviews (see below).
December 2021 employer status ruling – Uber is principal
The UK High Court last year had upheld an earlier Supreme Court employment law ruling that Uber and similar private taxi firms operating in London should consider their drivers as workers and not contractors. This suggests the taxi firm has a contract with the passenger when it accepts the booking. This means the driver is effectively working for the ride sharing platform and the legal obligations for the ride rest with the platform.
EU and OECD considering gig and sharing economy platform VAT
The European Union is also reviewing this issue as part of its VAT in the Digital Age program. This includes a subsection on VAT on platform economy. This may also opt to make the platforms in the gig and sharing economies the deemed supplier, and therefore liable for the VAT. The OECD has performed extensive work on VAT issues for the gig and sharing economies. The EU’s focus should be broader, although the OECD has now extended to goods and ride sharing.
