The UBER effect

Over the last few years, many words have been written in regard to UBER’s challenges with HMRC, most famously the decision in 2022 of the High Courts that UBER drivers are to be given employment rights.

The knock-on effect of this decision was that, for VAT purposes, UBER were not an agent in a supply of taxi transport services between the driver and the passenger but were actually the principal in the supply and so liable for VAT on the full charge made to the passenger for the journey.

However, this has not been the end to UBER’s battles with HMRC or the judiciary and has led to many businesses or advisors questioning VAT recovery for businesses using UBER taxis, and more recently, questions by taxi businesses questioning their current or future VAT position.

Again, as with the High Court decision in 2022, there have also been many words written on these issues, some of which certainly raise alarm bells for taxi businesses.

So, what is the current position on both of these issues?

Let’s deal with each separately.

VAT recovery for businesses using UBER taxis

Following UBER’s loss on employment rights in the High Courts, UBER decided that, as they were to be treated as principal in the supply of the tax services, their supply as principal fell under the Tour Operators Margin Scheme (TOMS).

For those not familiar with this somewhat complex scheme, in simple terms, TOMS allows a business buying in certain services, such as transport, and then selling them unaltered to simply declare VAT out of the margin achieved between the value at which those services were bought in and the value at which they were sold.

As with any margin scheme, no actual VAT is charged to the customer because the margin achieved by the supplier is treated as VAT-inclusive. As such, businesses using UBER taxi services are currently charged no VAT and have no VAT to recover.

However, HMRC have again challenged UBER at Tribunal, this time on its use of TOMS and whilst the full details of HMRC’s challenge are not known, it is understood that HMRC contends that, following the 2022 High Court ruling, UBER drivers are more akin to employees than external providers of transport supplying services to UBER which UBER then sells on unaltered, and as such, the taxi services provided to the end customer are provided by UBER as what is referred to in TOMS, as ‘in-house’ resources.

This case is only at the start of its journey through the tribunal system, and so, assuming whoever loses will appeal, it is unknown what the eventual outcome will be or when that outcome may finally come.

All that can be assumed at the moment is that UBER will likely continue to apply TOMS whilst the case progresses and until it is decided one way or another, and so, in the meantime, businesses using UBER taxi services will not incur VAT that can be claimed back.

Current and future VAT positions for all taxi businesses in the UK

Following their loss at the High Court and HMRC treating UBER as principal, UBER, jointly with the App Drivers & Couriers Union (ADCU) took a case to the High Court to argue that if they (UBER) or their members were to be treated as principal in a supply of taxi services were to be treated as principal, then all taxi businesses in the UK that use self-employed drivers should also be treated as principal.

In this case, the High Court found in favour of UBER/ADCU that an operator who accepts a private hire booking is required to enter as principal into a contractual obligation with the passenger to provide the journey that is the subject of the booking.

Of course, if this ruling were to be applied in all cases across the whole of the UK, this would significantly affect all taxi booking businesses that, under HMRC’s current rules, are seen as acting as agents between the driver and the passenger when taking the booking.

As of the date of writing this article, HMRC’s only response on this matter has been that they are considering the issue.

However, there is no knowing what the outcome of their considering the position will be.

For example, HMRC could consider that the ruling only applies to businesses whose relationship with their self-employed drivers is similar to or the same as that found in the UBER case.

However, playing devil’s advocate, unless HMRC were to provide some very definitive conditions for businesses to use when looking at their own business and to decide whether they remain agents or are in fact principals, such a decision would leave many businesses still uncertain of their position and open to future HMRC challenges.

HMRC could, instead, simplify things completely by taking a broad brush to rule that any taxi firm that takes bookings is to be treated as principal.

This would clearly simplify things for all taxi businesses and would essentially comply with the UBER/ADCU High Court decision, but would fundamentally alter the VAT treatment of numerous taxi businesses, would likely cause a business-wide increase in taxi fares, given that any taxi business with turnover over the VAT registration threshold would have to charge or account for VAT on taxi fares, and could potentially cause at least initial cash flow issues.

There are likely to be other possible outcomes to HMRC’s currently ongoing consideration of this issue.

However, whilst many articles suggest inevitable doom and gloom for taxi businesses and passengers alike, and the reality is that this is obviously of concern for taxi businesses, until HMRC make further statements on their position, any definite suggestion of doom and gloom is simply conjuncture.

Therefore, whilst not ideal, the only advice anyone can actually give at this point on this issue is that we all need to simply wait and see.

Written by Tony Pocock, VAT Consultant

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