- 10th December 2021
- Posted by: Suzy Hill
- Category: Personal Tax, Business News
High Court rules Uber drivers must charge VAT
Uber’s business model has been declared unlawful in London following a ruling in the High Court over whether VAT should be charged on fares
The High Court ruled that Uber’s drivers were compatible with the Private Hire Vehicles (London) Act 1998 and are now required to enter into contracts directly with their passengers and will be held liable for journeys taken while using their ride-hailing services.
The High Court case came after the Supreme Court ruled in February 2021 that Uber’s drivers were the ride hailing app’s employees. This meant that they were entitled to benefits such as sick pay and minimum wage.
The consequences of the case mean that Uber will now be required to pay VAT as its drivers are now classed as workers. Previously, drivers operated as self-employed which meant that, in the great majority of cases, its drivers were operating below the VAT registration threshold of £85,000.
As Uber is now operating the business, then the VAT registration threshold will be easily passed and all fares will be subject to VAT, with the result being that 20% of all fares will be payable to HMRC. The result of this is likely to increase the cost of Uber’s trips by 20%.
In the Supreme Court Case, Lord Justice Leggatt had suggested that due to its ruling, Uber was not only in breach of employment law but due to their ‘agent’ arrangement was also operating in breach of the Private Hire Vehicles (London) Act 1998 as administered by Transport for London (TfL). It was on this point that Uber sought clarity from the High Court.
The decision at the High Court centred around the legality of the controversial business model adopted by Uber and other ride-hailing apps.
The case was that many private hire vehicle (PHV) operators in London, including Uber, operated on the basis that the company simply acts as an ‘agent’ between driver and passenger; this meant that the overall company avoided directly entering into any contract with passengers using their services. Instead, Uber drivers contract directly with passengers, with the effect that the individual driver, as opposed to Uber, is liable for anything that goes wrong on that journey.
In court, Uber stated that the issue in question about the interpretation of Uber’s precise contractual arrangements was irrelevant. Uber argued that the 1998 Act does not seek to regulate any ‘private law relationships’ between drivers and passengers, and because its revisions are regulatory it does not require particular contractual relationships. Uber stated that this allows them the freedom to choose ‘whatever contractual model they wish’.
However, the court rejected this argument stating: ‘To interpret the act in this way gives effect to the statutory purpose of ensuring public safety. If the passenger’s only contractual relationship is with a driver he or she has never heard of and who is in any event unlikely to be worth claiming against, any claim is likely to be practically worthless.’
The High Court concluded that in order to operate lawfully, Uber must undertake a contractual obligation to its passengers and because Uber admitted that it at present did not, the court ordered Uber to amend its business model on how it provided its services.
Responding to the decision, Uber released a statement: ‘This court ruling means that all the details of the Supreme Court decision are now clear. Every private hire operator in London will be impacted by this decision and should comply with the Supreme Court verdict in full.
‘Drivers on Uber are guaranteed at least the national living wage, holiday pay and a pension plan but we’re not the only player in town. Other operators must also ensure drivers are treated fairly.’
The decision of Monday’s case has repercussions for many private hire vehicles working in London as on Monday TfL released a statement which said: ‘All operators will need to carefully consider the court’s judgment and take steps to ensure that they comply with it, including considering whether any changes to their way of working are required.’