Plan Insurance Blog

“Serious Unanswered Questions” Raised by Uber’s VAT Settlement

Uber recently made two significant announcements. Firstly it’s confirmed that an eye-watering settlement figure has been reached with HMRC over its long-running VAT dispute. It also revealed a strong set of trading figures after sustained struggles on that front.

In this article, we’ll explore why experts are unhappy at the sums involved in Uber’s UK VAT settlement. We also examine what the outcome could mean for the rest of the private-hire and ground transport industry.

‘Disruptor’ is a term originating in silicon valley. It refers to a company that uses technology to drastically change the way things are traditionally done in an industry. This phrase describes Uber in more ways than one way.

Plan Insurance can provide bespoke taxi insurance quotes for all UK drivers. Just fill in our short online questionnaire, and our professional brokers will be in contact to arrange your insurance.

The history of Uber and the UK courts

In 2016, Uber drivers James Farrer and Yaseen Aslam took the ride-hailing giant to an employment tribunal. They were the first ones to declare they weren’t self-employed but instead workers. Uber denied this, saying that Uber drivers were ‘partners’, using the app to find riders for their own driving business.

Uber appealed, but the Employment Appeal Tribunal upheld the ruling in 2017. Uber then took the case to the Court of Appeal, which upheld the decision in 2018. On 19th February 2021, The Supreme Court dismissed Uber’s final appeal.

Uber’s VAT bill

Uber maintained that it should only pay VAT on the commission it received from the driver. This is because the company saw its role as an agent, and believed the burden of paying VAT should be put onto the drivers. However, most drivers earn below the £85,000 VAT registration threshold and are therefore were not obligated to charge VAT.

HMRC wanted Uber to charge the standard rate of VAT for gross bookings, not on their admin fee (which traditional operators call circuit rent or commission).

Uber get served a massive VAT bill

Following a high court ruling in 2021, Uber’s business model was declared unlawful. The decision was further upheld at the highest court in the land, The Supreme Court.

This judgement forced Uber to start collecting VAT on service fees. There were murmurs about whether HMRC would have the guts to serve Uber with the bill for backdated VAT. It did.

In November 2022, Uber announced that it had agreed to pay HMRC £615m to settle outstanding VAT claims. The news came as they confirmed that globally gross bookings grew 26% to $29.1bn and revenue increased by 72% to $8.3bn.

The company highlighted an uplift in demand post-pandemic restrictions being lifted “created fresh challenges.” It had struggled to attract drivers back to the service.

However, profits at its London subsidiary almost doubled. The loosening of Covid-19 control measures meant it could avoid discounting rides. Turnover reduced from £51 million to £48.6 million but pre-tax profit rose from £1.2 million to £2.3 million.

Was this a win or defeat for HMRC against Uber?

British Barrister Jolyon Maugham said that Uber’s VAT payment was considerably “Less than HMRC was asking for”, also “there are some very serious unanswered questions about why HMRC appears to have settled the dispute with Uber for such a low sum”. The original amount was believed to be closer to £1.5b.

So should the rest of the private-hire industry also pay VAT on fares?

Uber has been forced to charge VAT on all its journeys as a result of these court cases. They are now seeking to force their competition in England and Wales to do the same.

Uber is suing Sefton Council over rules for operators outside London. This could mean fares across the UK rising by 20%. The firms include Delta, one of the largest private-hire operators in the country.

The future of VAT in private-hire

On October 13th at the House of Commons, Daniel Zeichner MP raised a question regarding private-hire operators and VAT. Lucy Frazer MP, as Minister of State (Department of Transport) said, “the question of whether a private hire vehicle operator needs to pay VAT depends on two factors: whether he is acting as principal or as agent; and whether he meets the VAT threshold. As he will also know, His Majesty’s Revenue and Customs is responsible for VAT.”

Does this mean VAT on fares for every private-hire operator is impending?

It’s unclear.

Remember that the contracts for Uber and other ride-hailing apps are very different from the working models used by most other operators. That being said, the eyes of the law and the taxman are firmly on the industry. There’s no doubt about that.

Gary Jacobs, the accountant to the private-hire trade, had this to say…

‘Paying VAT means you become a tax collector for the government, collecting their tax and passing it on. VAT money should not be relevant to a company’s actual profitability. It just hurts a little for consumers who cannot claim it back.’

Gary Jacobs

One thing is for sure. When the outcome of Uber’s case against Sefton Council comes out, the private-hire world will be waiting eagerly.

Find out why 96% of our customers have rated us 4 stars or higher by reading our reviews on Feefo.

To get a quote give our specialist teams a call on 0800 542 2743 or request a Call Back.

Already a client? Why not recommend us to your contacts in exchange for a £50 discount off your renewal with our Refer a Friend scheme?