The ever-controversial yet ever-popular taxi hailing app 'Uber' has hit the headlines again this week with claims that it should be paying VAT on fares. If the claims are well-founded, this could result in Uber having to pay VAT going back four years or more – a hefty blow when you consider Uber’s VAT bill was allegedly £20 million for the year 2015 alone.
A leading tax barrister, Jolyon Maugham QC plans to argue in the High Court that Uber is making a “taxable supply” and should therefore be paying VAT on rides.
Uber have sought to describe themselves as merely a “platform” which connects riders and drivers rather than a transportation service, meaning that it does not have to pay VAT. Instead, Uber shifts the responsibility for VAT onto its drivers, arguing that if drivers earn above the VAT threshold then the tax is their responsibility.
This case echoes the landmark employment tribunal ruling last October in which Uber lost the right to classify UK drivers as self-employed and was ordered to pay drivers minimum wage and holiday pay. The tribunal in that case found that Uber supplied transportation services to passengers. This reasoning could be applied to argue that Uber should therefore be paying VAT.
If this challenge is successful and Uber are forced to pay VAT on fares, Uber may be forced to re-think its business model and either increase fares or decrease drivers’ pay. When you consider that Uber replicates this structure across the EU, the tax bill could be multiplied significantly given that VAT should operate identically across the EU.