Uber employment appeal loss - £40m VAT risk

Today, the car-sharing ride service, Uber, lost its UK Employment Appeal Tribunal hearing as to whether its drivers are ‘workers’ or self-employed. The ruling, that they are considered workers for employment rights purposes, may encourage HMRC to revise the current position that Uber is not responsible for VAT on rides. This could leave Uber liable to £40million in back VAT.

Uber may appeal to the Court of Appeal, and then Supreme Court against this ruling.

The UK tax authorities had said that they were tracking this case since it could overturn the current position as to whether Uber or its drivers are providing the taxable taxi service. Currently, HMRC treats the taxi driver as the principle, and so responsible for any VAT due. Since almost all of Uber’s 40,000 UK drivers’ earning are below the VAT registration threshold of £85,000, no VAT is charged or collected.

The ruling, however, points to Uber being the service provider and therefore liable to charge VAT at 20% on each ride.

HMRC recently confirmed it is tracking the outcome of this case. In recent years, HMRC has lost six similar agency-related VAT cases, so it has been reluctant to proceed without some legal certainty. Today’s result points to this now being in place.

Reuters recently estimated Uber’s VAT liability being £40million, which excludes any fines and interest, if HMRC were to revise its treatment.

It is likely that the tax authorities would welcome this change in the responsibilities to collect taxes since it has struggled to deal with the explosive growth in 'micro businesses' facilitated by the digital economy.  It is concerned that this new 'gig economy' is undermining its tax base.

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