Sarah Halsted

Written by: Sarah Halsted

Sarah Halsted

Technical Associate Director

Where does Uber leave us for VAT?

The Supreme Court has concluded that taxi drivers, whose work is arranged through Uber’s smartphone app, are Uber’s employees, rather than contractors performing services independently under contracts made with passengers, using Uber as their booking agent. 

While the immediate reaction has focused on Uber drivers’ entitlement to employment rights, such as minimum wage and holiday pay, further litigation on the VAT position of Uber’s business model may be waiting in the wings. Full details have yet to emerge, but it is understood that Uber also treats itself as an agent for VAT purposes, so accounts for VAT on the 20 per cent commission it charges to drivers who find work through its app. On this basis, it would be the driver who is responsible for any VAT on the private hire service he or she provides to the customer and, as most drivers’ individual turnover will not exceed the VAT registration threshold of £85,000 per year, in practice no VAT is due on the driver’s share of the fare. 

HMRC is reported to have raised protective VAT assessments of £1.5 billion against Uber on the basis that it is Uber rather than its drivers who supply the transport service to passengers. If HMRC were to win that argument, Uber could be liable to VAT on the full value of the fares, not just its commission.  Assuming the dispute proceeds into litigation, the courts will examine the legal tests for whether Uber acts as an agent or principal for VAT purposes. This is separate from the employment question, and it could take three or four years before a firm conclusion is reached. However, the Supreme Court’s approach in Uber v Aslam gives some clues as to how this might turn out for Uber and the possible implications for other platform providers. 

There are few hard and fast rules to determine whether a business acts as agent or principal for VAT purposes, and cases are usually decided by comparing their individual facts to previous case law.  Broadly speaking, the VAT position will follow the terms of the contracts in place between the parties, unless it can be shown that the economic and commercial reality of the business activity is different. 

In Uber v Aslam the Supreme Court pointed out that an agent cannot create a contract between a service provider and a customer merely by purporting to do so – the service provider must specifically authorise an intermediary to act as its agent. The court could find no such authorisation by the drivers in Uber’s contracts, or any implication of one in their day-to-day conduct. The absence of this, and the level of control Uber has over its drivers’ activities, led the court to conclude that the drivers were not self-employed. 

It may be possible for Uber to correct this omission in contracts going forward, but the remaining findings on the high level of control Uber had over the drivers also suggests that it might be hard for Uber to build an economic and commercial case that it acted as an agent for VAT purposes, in the past at least. 

The Supreme Court thought that Uber’s approach effectively stopped drivers from forming direct trading relationships with customers, or from growing their business without working extra hours. This may have led to a customer perception of a standardised Uber product with drivers who were interchangeable. The court contrasted this with the approach of accommodation booking services, such as hotel booking apps and websites, which present providers under their own name or brand, offer a diverse choice of the type and features of the accommodation and leaves the level of service and pricing in the hands of the accommodation providers. 

The VAT impact on similar platforms will depend on the outcome of any Uber litigation on its VAT position, and the precise business model used. Agents who operate similar digital platforms should check their contractual position and watch closely for further developments. 

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