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UK Uber ride-sharing to charge 20% VAT

Uber imposes 20% VAT following High Court employment case upheld it as a contractor rather than agent

Ride sharing platform, Uber, will start to impose 20% Value Added Tax from 23:55 on 14 March 2022. This follows a December 2021 UK High Court ruling on its drivers’ status. 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 means 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.

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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.

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