As my colleagues identify, the ‘gig economy’ in general, and the Uber case in particular demonstrates that the labour market has evolved and taxpayers can often morph between, or be simultaneously employed and self-employed.
However, if we thought the direct tax/NIC issues are complex, the VAT consequences for Uber, its drivers, and its customers - and indeed similar business models - take ‘complex’ to a whole new level.
Unlike passenger transport in buses, trains and airplanes, the fares charged to passengers for taxi or private hire journeys by the end supplier are liable to VAT at the standard-rate.
Where, as argued by Uber, the supply of transport is by a self-employed driver, the fares collected accrue to the drivers’ VAT registration threshold and will be subject to VAT if the driver is VAT registered. This is possibly one of the reasons why Uber maintained it was acting as an agent on behalf of the driver, as many taxi drivers in receipt of Uber fares will be trading below the VAT registration threshold.
The employment tribunal found however that it was Uber which was making the supply of transport to the final customer. As such, as the principal in the supply chain, Uber is now exposed to a huge VAT bill for its supplies made to private individuals in the UK.
The one saving grace for Uber however is that, if it can prove that the end users are VAT registered business customers, then, as a Dutch VAT registered company, it can treat its supplies to its UK business customers as intra-community supplies of services, free from VAT. These business customers would however have to account for VAT under the ‘reverse charge’ mechanism. However, if the supplies are indeed being made by Uber, and not by non-VAT registered self-employed individuals, businesses such as banks and insurance companies in the VAT exempt sector will suffer a real cost on Uber’s supplies as they will not be afforded VAT recovery on such ‘reverse charges’.
Furthermore, if a driver’s only source of income is fares derived from their Uber contract, they will be unable to recover VAT incurred in the purchase and maintenance of their vehicles. Drivers with contracts outwith Uber will however still be VAT register-able in their own names and afforded VAT recovery on their underlying costs.
Whether Uber is acting as a principal or agent has global VAT and GST implications. Indeed, while HMRC will be studying the UK VAT implications with interest, we are aware that other tax jurisdictions, including Australia, Finland, Indonesia and Kenya have all considered that it is the taxi drivers, and not Uber which should account for VAT.
The VAT consequences alone suggest that Uber is likely to appeal.
For more information please get in touch with David Wilson, or your usual RSM contact.