news analysis
Mark Bursa
By challenging the conditions of its licence in Sefton, Uber seems to want VAT – which it studiously avoided paying for years – to be charged on all cab fares. Should we be worried? Mark Bursa reports...
A problem shared M
uch of the chatter around the stands at recent taxi trade events
was about Sefton. Not the heroic police horse, but a forthcoming court case involving, once again, Uber, in the Merseyside borough of Setfton.
There’s much wailing and gnashing of teeth about this case, with the most extreme opinions suggesting a kind of armageddon for the private hire industry. Why? Because we’ll all be forced to pay VAT, apparently. The case has its origins in last year’s Supreme Court ruling about Uber’s London operations. Lord Leggatt’s ruling meant that a passenger was entering into a contract with the operator when they made a booking, instead of the passenger having an agreement with the driver. This logically stems from the ruling that Uber’s drivers were “workers”, not independent contractors. Uber has announced that it will soon have to start charging its UK customers VAT at 20% after a High Court judgement, pushing up the cost of rides. A judge has ruled that UK private hire taxi operators must make contracts with their customers. This could have massive consequences for the industry. This follows on from our previous coverage of Uber, outlining that Uber drivers should be treated as workers, not contractors. The Supreme Court’s judgement is still rippling through Uber’s working model On top of the human rights implications, as well as the effect on sick pay and holiday pay, the ruling has broader implications for the relationship between operators and passengers. Lord Leggatt’s ruling meant that operators were essentially entering into a contract with their customers when they accepted a booking, instead of the passenger having an agreement with the driver. The VAT implication is clear. Uber is a
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VAT-registered business, whereas most private hire drivers are not – they don’t earn enough to reach the threshold for VAT. The Supreme Court’s ruling that the contract is between between the passengers and the operator (Uber), not the driver, so VAT must be paid on every journey. This means basically a 20% fare increase, but collection of tax revenue into the economy that was previously being avoided. Uber didn’t like the ruling, but it has gone along with it, and now it wants to see if it applies nationally, not just in London. This is because London’s private hire sector is governed by a different act of parliament, the Private Hire Vehicles (London) Act 1998. The court ruling in London stated: “In order to operate lawfully under the
Private Hire Vehicles (London) Act 1998 a licensed operator who accepts a booking from a passenger is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.” Transport for London has accepted the judgement, and has issued guidance to all London operators, with a view to them complying with the ruling – and therefore charging VAT. Operators are having to change their business model status to “merchant” in order to comply – and most appear to be falling into line. Why is this a problem? For any corporate clients, paying VAT on a cab fare is no big deal. It can be claimed back. And with apps such as Uber’s offering cashless payments, it’s pretty easy to account for it. It’s more problematic for private jobs, where a £50 fare becoming a £60 fare could make a difference. Then again, once could argue that fares were too low in any case, and perhaps the VAT imposition gives operators a chance to reset their fare structure – so the £50 fare starts off as a £60 fare, and VAT makes it a £72 fare. Kevin Sefton, CEO of personal tax app Untied, said: “As a big company, Uber should be charging VAT on its services – and should have been in the past. This could add up to £1bn or more in back taxes.” He added: Uber customers are likely to see prices rise to take account of the VAT. From a driver perspective, demand could possibly fall as a result of these price rises, or they may need to share some of the hit.” Uber is now acting as if it has some kind of moral high ground (having lost its case), recently stating: “Every private hire operator in London will be impacted by this decision, and should comply with
JUNE 2022
