August 03, 2023


I’ve long thought that media reports announcing that Uber will have to account for 20% VAT on all ride income, rather than just on its margin, were somewhat speculative and premature. Recent announcements made by Uber show it thinks VAT should only be paid on the margin but HMRC disagrees. It looks like Uber’s case will end up before the Courts; presumably it or HMRC will Appeal any loss before the Tax Tribunals, potentially all the way to the Supreme Court.

We’ll thus have plenty of time to read the facts and arguments presented in Court, but what do we know already?

The Courts have determined that when a passenger books a journey via a ride hailing App, it is contracting with the App owner, e.g Uber, Bolt or Veezu, rather than the individual driver.

Although this isn’t strictly a tax decision, it does appear to put paid to any argument that the App owner is just an Agent. Uber initially argued that it was an Agent, and it should only account for VAT on its own fee. Typically, drivers will not be registered for VAT, on the basis the driver’s turnover is below the threshold.

Separately, Uber drivers have successfully argued that they are “workers” for employment law purposes, but this does not mean that they are “employees” for tax purposes. So the driver is effectively a sub-contractor, providing the actual carriage of the passenger. The driver’s customer is Uber, not the passenger.

On HMRC’s interpretation, Uber must account for VAT on the full value of what the passenger pays, and assuming the driver is not VAT registered Uber cannot offset input tax on the driver’s charges.

However, I understand that Uber is arguing that the Tour Operator’s Margin Scheme (“TOMS”) applies, meaning Uber just accounts for VAT on its profit margin. (As calculated under the TOMS rules-the TOMS profit margin may not be exactly the same as the gross profit.)

HMRC dispute this. The heart of the dispute seems to be whether the transport service supplied to Uber is then re-supplied to the customer “without material alteration or further processing.”

At this point, I want to introduce a case called Sonder, which rented 40 individual apartments from third party landlords. The landlords charged Sonder an annual fixed rent.

Sonder then advertised the apartments for short stay lettings to corporate and leisure travellers via the App. Sonder took the commercial risk of loss if the apartments were not let, the rent paid by Sonder remained the same regardless of the number of days the apartments were occupied by travellers.

Sonder was responsible for cleaning, made sure the apartments were kitted out and decorated in Sonder’s distinctive style, and dealt with guest queries (e.g. how to operate the heating) or requests (e.g. further towels or toiletries.)

HMRC argued that Sonder’s offering to visitors was materially altered from what it bought in from the landlords who rented the properties TO Sonder.

HMRC lost this case recently, the First Tier Tribunal deciding Sonder was entitled to use TOMS, and account for VAT on its TOMS profit margin.

Sound familiar? I think the final outcome of how much VAT is due from Uber is down to the Courts…


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