Will Uber’s recent court battles regarding workers’ rights be followed by a VAT dispute?
Jan Garioch CA discusses the VAT dispute which may follow the Supreme Court’s judgement on Uber BV and others (Appellants) v Aslam and others (Respondents).
The background facts
Uber has recently announced that all of its UK drivers will earn at least the National Living Wage and be entitled to paid holiday time. They will be enrolled in a pension plan with contributions from Uber. These changes follow Uber’s loss at the Supreme Court in February 2021 as the culmination of a case initiated back in 2016 by several Uber drivers.
Who is providing the service?
The Courts put aside Uber’s argument that the drivers were self-employed and it was merely a third-party booking agent. Instead, the Supreme Court ruled the drivers were workers and hence entitled to certain minimum rights from Uber. This opens the door for the argument that Uber should have been accounting for VAT on fares, because if the drivers are workers for Uber it supports the construction that it is Uber which is providing the transport supply to the passengers and not the drivers in their capacity as freelance service providers.
Who is the Private Hire Vehicle Operator?
The Supreme Court did not find it necessary to express any conclusion on VAT in order to reach a decision on the case before them regarding drivers’ rights. However, the judgement contains reference to some relevant points. The Court heard that it is unlawful for anyone in London to accept a private hire booking unless that person is the holder of a private hire vehicle operator’s licence. It also heard that it is only Uber London which holds such a licence as the drivers do not. Uber tried to maintain that the acceptance of private hire bookings by a licence holder acting as agent for drivers complied with the regulatory regime. The Supreme Court was unconvinced by this because acceptance of a private hire booking is reasonably understood to connote acceptance personally and not merely for someone else.
The Court saw the possibility of Uber accepting an obligation itself and on behalf of the driver of the vehicle but it stated that in such a circumstance it would be hard to avoid the conclusion that the driver would be in contravention of the Private Hire of Vehicles (London) Act 1998 without holding a licence. Counsel for Uber sought to resist this interpretation on the grounds that there is a “long-established industry practice” whereby PVH operators may merely act as agents for drivers who contract directly with the passengers. However, they produced no evidence and, as mentioned above, the Court found it unnecessary to express any concluded view.
For VAT purposes it is crucial to identify who is supplying the transport service to the passengers. Uber itself acknowledged that if the Supreme Court had found that the drivers were its employees, then it would be exposed to a VAT liability on the fares. However, The Court’s judgement was that the specific drivers who brought the case fell within the definition of “workers” by entering a contract with Uber London to provide driving services. This is a category which can be distinguished from either employed or self-employed and the VAT position which depends upon identifying who is supplying the passenger transport service is not yet nailed down.
There have been press reports of a large VAT assessment being raised on Uber by HMRC. The Good Law Project, which has been active in encouraging assessment of Uber, has flagged Uber’s filing to the United States Securities and Exchange Commission where there is acknowledgement of proceedings involving HMRC seeking a transport provider classification “which would result in a VAT (20%) on Gross Bookings or on the service fee that the Company charges Drivers, both retroactively and prospectively”.
Uber faces a large financial exposure and a fundamental challenge to its operating model. HMRC also faces competing pressures. The obligation to pursue VAT where is it due in order to maintain goodwill in the system may sit uneasily alongside the current political landscape, with the government aiming for a Global Britain attracting multinational companies. Both HMRC and Uber have a great deal at stake and more litigation seems highly likely.