12/12/23

Ride Hailing Companies | VAT liability | KANGS Tax Solicitors

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In 2021, the Supreme Court ruled that Uber drivers should be classed as workers rather than independent contractors. The decision affected Uber’s VAT responsibilities.

The High Court in Uber BL v Sefton MBC [2023] EWHC 1975 (KB) has now extended this principle to all ride hailing companies.

Hamraj Kang of KANGS outlines ride hailing firms’ new VAT responsibilities.

The Tax Team at KANGS provides a wealth of experience gained from advising clients over many years upon tax issues of every nature, both criminal and civil, including those covering liability to VAT.

It is anticipated that there will be an increase in VAT Assessments severed by HMRC on private hire car companies in the light of the recent decision in the above-mentioned case involving Uber. If you anticipate receiving or have received such a VAT Assessment, it is important to take legal advice in order to protect your position and to activate the appeal procedures open to all taxpayers including requesting an Independent Review and lodging an appeal with the First-tier Tax Tribunal.

For an initial no obligation discussion concerning tax issues of any nature, please call our Team at any of our offices detailed below:

The Proceedings | KANGS VAT Disputes Solicitors

In 2016, two Uber drivers maintained before an Employment Tribunal that the structure of their work entitled them to be considered employed workers, rather than independent contractors, thereby entitling them to the benefits of employment rights.

The Employment Tribunal found in their favour which resulted in Uber appealing to the Supreme Court in Uber BV v Aslam [2021] UKSC 5.

Although an issue of employment rights, the finding that drivers were not self-employed triggered implications on the liability of ride hailing companies to the incidence of VAT.

As the 2021 Judgment applied only to Uber London, it created a competitive disadvantage for Uber which commenced proceedings the outcome of which were successful, thereby uniformly imposing the same obligations upon all ride hailing companies.

Effect of the ruling

The decision means that ride hailing platforms, as opposed to individual drivers, are forming a contract with riders. Previously, the Operator was considered to be an Agent with the result that the only contract was that between the driver and passenger.

The outcome is significant for HMRC which will benefit from significantly increased income.

Previously, most drivers would not have been required to register for VAT as their incomes would not have reached the required annual threshold of £85,000.

However, where the providers’ income exceeds that level, they will now be accountable for all accruing VAT.

How will VAT be calculated?

There is an ongoing dispute between HMRC and Uber to determine whether ride hailing platforms should be required to pay VAT at either:

  • 20% of the fee paid by riders, or
  • 20% of the platform’s portion of the fee.

Can HMRC impose this tax liability retrospectively?

Firms which had not been paying VAT before this ruling, even where they were unaware of their obligations, can face potentially large VAT Assessments from HMRC. For example, after Uber implemented the decision of the Supreme Court in 2021, it received a backdated VAT assessment for £1.5bn for the years during which it understood its drivers to be self-employed.

It is to be expected that HMRC will be seeking recovery of backdated tax from other ride hailing firms which will be worrying for those which have not anticipated the liability.

Additionally, the number of customers using their services may decrease when faced with inevitably higher operating fares.

How Can We Help? | KANGS Tax Tribunal Solicitors

It will be appreciated from the above that there is real potential for backdated VAT Assessments to be raised and firms which may be impacted should immediately consider how this will affect their business and the steps that should be implemented.

Not paying accrued VAT at any time can result in serious implications for any business.

If your business has received, or you anticipate that it may receive, an HMRC VAT assessment in light of the changes outline above, we can provide advice on reviewing the decision and taking the matter to an Independent Review or Tax Tribunal.

The Tax Team at KANGS is accustomed to liaising and negotiating with HMRC or, when necessary, disputing any Assessment raised by HMRC and appealing cases to the First-Tier Tax Tribunal.

We can be contacted as follows:

Telephone: 0333 370 4333

Email: info@kangssolicitors.co.uk

We provide initial no obligation discussion at our three offices in London, Birmingham and Manchester.

Alternatively, discussions can be held virtually through live conferencing or telephone.

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