A long running case involving the Uber taxi ride service has concluded with a retrospective VAT liability being agreed with HMRC in the sum of £615m, which will go some way to help the Treasury. It is a fascinating case, mainly because the VAT liability was determined by an entirely separate employment case around whether drivers were self-employed or employees.
Uber always saw itself as an agent, their role was to supply an App that would connect a self-employed taxi driver with a customer wanting a taxi ride. This structure meant that the taxi ride was often not subject to VAT because the self-employed driver was inevitably not VAT registered and the journey fees Uber collected as agent, were on behalf of the driver, the driver being the principal.
There are many VAT tribunal cases revolving around the concept of agent/principal and many a business has come unstuck where roles are not clearly defined.
It started with a case brought by some Uber drivers, relating to pay and conditions back in 2016 and the drivers were seeking recognition as employees rather than self-employed. That case ground slowly through the justice system and culminated in Uber losing at the Supreme Court, the highest Court deciding that the drivers were employees. A link to the case can be found here, but to summarise the decision:
“The law required a contractual obligation between operators and passengers once a booking is made. To interpret the act in this way gives effect to the statutory purpose of ensuring public safety. If the passenger’s only contractual relationship is with a driver he or she has never heard of and who is in any event unlikely to be worth claiming against, any claim is likely to be practically worthless.”
Having established the drivers were employees, then this also meant that Uber could not be acting as an agent, but were in fact acting as principal, therefore Uber was making a supply of taxi services. Uber owed a substantial sum of VAT relating to historical taxi journeys.
HMRC showed no interest in any of this. Whilst HMRC were watching the employment tribunal case from the side-lines, HMRC had taken a view that there was nothing to see here, action was only triggered by HMRC following a high court application by The Good Law Project, a not for profit law practice who are a “campaign” organisation that challenges the Government on a variety of legal matters.
That high Court action demanded that HMRC investigate and assess Uber on the basis that Uber was not declaring VAT on the taxi journeys being made by Uber drivers. If you want to follow the history of this case, further details can be found on their website here.
It is a fascinating case with HMRC saying one thing to Uber (no VAT issues) and another to the Public Accounts Committee (HMRC stating they’d had several losses historically in relation to agent and principal and they could not raise an assessment as the law requires them to make a fair and reasonable assessment, which they could not do for reasons unexplained).
A telling and insightful commentary here, where the Public Accounts Committee (PAC) meeting relating to HMRC Performance, questioned Jim Harra, then HMRC Chief, at questions 88 to 91, where he was asked why HMRC did not raise protective assessments and the PAC were fobbed off with an excuse about HMRC not having an appetite for these cases having lost so many in the past.
Ultimately, HMRC showed a disinterested, almost defeatist attitude in pursuing Uber on any particular level. That all changed following The Good Law Project and their application to the Courts to force HMRCs hand.
Estimates of what was owed have been around the £1b-£1.5b mark, this was based on the average number of drivers, average earnings per drive, multiplied by 4 years of retrospective claim. Had HMRC raised an assessment at the start of the self-employment cases in 2016, Uber would have had a much longer liability, so Uber have enjoyed a substantial saving due to HMRC’s reluctance to assess Uber, HMRC only assessing from the date of the employment case at the Supreme Court.
We know the actual amount accepted by HMRC is £615m, which is substantially short of the £1.5b figure being touted originally, it is not clear if the £615m includes penalties or interest, we do know it is over 4 years as it states this in the parent company (Uber Inc) filings with the USA Securities and Exchange Commission, see here, search for “HMRC”. Presumably Uber will have the right to reclaim some input tax, so maybe the £615m is about right, we will never truly know. But the numbers don’t feel right, averaging £150k of VAT per year, which is nothing to a multi-billion business.
Since March 2022, Uber have amended their terms and conditions to properly reflect the principal/employer relationship. But in a somewhat sudden desire for a level playing field (having exploited their VAT free status at the expense of competitors), Uber have recently commenced a civil action against Sefton Metropolitan Borough Council, arguing all private taxi operators outside of London must follow the same ruling as Uber in that the principal is the operator of the service, not the driver, in effect, forcing competitors who operate a similar App/self-employed driver model to be recognised as principals.
So, there is potentially much more to come from the fallout from this in the future. The Sefton case has been discussed in Parliament, see here, and HMRC are once again awaiting the outcome before making a move. All in all, what an Uber mess this has been and could become again in the future.
How can we learn from this?
Principal or agent is an important concept in VAT, both HMRC and the Tribunals look equally at the written contracts in situ as well as the practical real-life situation. Many VAT disputes derive from unclear relationships, and as the Uber case shows, it can often be a fine line between an agent acting between supplier and customer and becoming a principal in your own name.
How Rayner Essex can help
If you believe your existing agent/agreements are no longer robust in light of the Uber case or if your business has changed over the last few years, perhaps a change of business model due to lockdowns forcing a new approach, then it may be worth reviewing your contracts to ensure that they maintain your previous agent or principal status.
Rayner Essex has vast experience in setting up companies, be it a sole trader or employee status and advising clients on VAT and tax matters. Our VAT experts have also often handled HMRC enquiries and disputes and can best advise you of how to deal with any counter claims or prepare an appeal, and whether it would be in your interest to appeal.
Get in touch
Should you have any queries relating to VAT, HMRC or tax and compliance matters speak to one of our VAT or Tax experts who will be happy to assist you. Our experts have years of experience in handling HMRC disputes and appeals and can better advise you as to how to effectively challenge or appeal, and if you have a viable case.
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