Uber is at the centre of a huge tax dispute with HM Revenue & Customs (HMRC).
The company is contesting a £1 billion VAT charge imposed since March 2022. Found in recent accounts, Uber has paid a substantial amount yet claims this is against their profit, not revenue.
The Core Dispute
Since March 2022, Uber has been mandated to pay 20% VAT on fares and delivery sales, leading to a £951 million charge by HMRC. However, Uber argues this VAT should apply only to its profits, not total revenues.
Recent accounts reveal that Uber shelled out £631 million in VAT during 2023 alone. They list this as a debt they expect to recover. Additionally, the company paid £150 million in January and faced a recent bill of £170 million.
Uber’s Stance
Uber’s UK annual report states the payments don’t signify their acceptance of the charges. They express confidence in winning their appeal, which would see their repayments returned with interest.
Historically, Uber didn’t charge VAT to customers, viewing itself as just an intermediary between them and drivers, who were VAT-exempt unless earning over £85,000 annually.
The Supreme Court Ruling
The dynamics shifted after the 2021 Supreme Court ruling.
This ruling classified Uber drivers as ‘workers’ rather than self-employed, which resulted in a £615 million settlement over unpaid VAT and future VAT commitments.
Uber now invokes the Tour Operators’ Margin Scheme (TOMS), arguing the 20% VAT should apply only to its profit on sales.
Supporting Precedents
Last December, a tax tribunal upheld rival Bolt’s claim to be eligible for TOMS, supporting Uber’s argument.
HMRC, however, is appealing this verdict.
The Treasury is also consulting on potential VAT rule changes for private-hire vehicles.
Financial Insights
Uber’s UK accounts indicated a profit of £29 million on £5.3 billion in revenues last year. They paid £4.5 million in corporation tax.
The company’s revenues saw a 56% hike, partly due to restructuring in 2022.
However, even with increased revenue, the ongoing VAT dispute remains a substantial financial burden for Uber.
The Wider Implications
It’s not just about Uber; the outcome could set significant precedents for the gig economy.
Potential changes to VAT rules could impact numerous businesses relying on similar business models.
The case underscores the evolving complexities of tax regulations in the digital age.
Awaiting Resolution
As Uber braces for this legal fight, the implications for the business model are profound.
The resolution of this case could reshape how companies like Uber operate within the UK market.
Uber’s VAT dispute with HMRC is a significant battle that could redefine tax obligations in the gig economy.
The outcome will be closely watched, potentially setting new precedents for businesses across various sectors.
