How does the big VAT minicab sector squeeze affect TAXI DRIVERS?

Private hire operators from across England held an ‘URGENT’ private hire industry webinar to discuss the implications of an Uber and Sefton Council court case that could drastically impact the taxi and private hire sector.

The emergency webinar took place on Thursday 19 May and discussed the upcoming court case which focuses on operators paying VAT.

If ride-hailing giants Uber are successful, the changes could force contractual arrangements with drivers and make all operators the principal for VAT on fares. This is likely to force the price of journeys up and squeeze minicab drivers further as operators try to remain competitive.

Uber have long argued that all other private hire operators should follow their lead by making changes to their business models. Earlier this year Uber made big changes which included paying VAT on all UK journeys following a similar court case in London.

If Uber win their court case with Sefton Council, ALL licensing authorities outside of London could then be forced to follow suit to create a fairer playing field for operators to work under the same rules.

What exactly is the latest Uber court case about?

Essentially Uber are seeking High Court Declaration on model lawfulness in the ‘provinces’ after the London court case result.

Sefton Council sent out a notice to the attention of interested parties that describes the legal action below:

High Court Declaration Proceedings concerning the obligations of private hire vehicle operators licensed under Part II of the Local Government (Miscellaneous Provisions) Act 1976

In Uber London Limited v. Transport for London and others [2021] EWHC 3290 (Admin) the Divisional Court made the following declaration:

In order to operate lawfully under the Private Hire Vehicles (London) Act 1998 a licensed operator who accepts a booking from a passenger is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.

Uber Britannia Limited (“UBL”) is licensed by the Council as a private hire vehicle (“PHV”) operator under the provisions of Part II of the Local Government (Miscellaneous Provisions) Act 1976, which the Council has adopted to apply in its area.

UBL has commenced proceedings against the Council under Part 8 of the Civil Procedure Rules seeking the following declaration from the High Court:

In order to operate lawfully under Part II Local Government (Miscellaneous Provisions) Act 1976, a licensed operator who accepts a booking from a passenger is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.

Will this affect licensed taxi drivers?

Because taxi drivers can ply-for-hire, and do not require an operator to receive pre-booked work, they are not deemed as workers and can continue under their current self-employed status.

Most self-employed taxi drivers work under the £85,000 VAT threshold so VAT is unaccounted for.

One of the side effect positives for Hackney Carriage drivers is that should all PHV operators be accountable for VAT, their own prices are likely to become very competitive, very quickly.

Around 45% of the fare paid by PHV customers could be swallowed up by VAT and operator charges alone. Vehicle costs and rising fuel bills means only a fraction of the fare remains for the driver. Low pay remains a huge issue for the sector as it continues to look for new ways to recruit drivers to meet demand.