Ride-hailing firm Uber could be slapped with a huge VAT bill valued in excess of £1.5billion after the Supreme Court this week provided workers’ rights to thousands of drivers across Britain.
On Friday, Britain’s highest Court handed victory to Uber drivers in their long battle for workers’ rights, which includes the right to earn the minimum wage and holiday pay.
Tens of thousands of Uber drivers can now claim the right to be classed as workers after the Supreme Court handed down its judgment. Law firm Leigh Day, which represents more than 2,000 clients, believes Uber drivers could now also be entitled to an average of £12,000 each in compensation.
However, the potential cost of the landmark gig-economy judgement is starting to add up, as pressure now intensifies on HM Revenue & Customs (HMRC) to clamp down on the private hire operator. Uber have historically passed VAT liability to individual drivers who they claimed were independent contractors, rather than workers.
There are three types of employment categories under UK employment law. These include: full-time employed, workers, and self-employed. However a grey area remains as employment status for tax law only includes two categories: employed and self-employed.
HMRC must now decide whether they should class Uber drivers as self-employed or employees. If HMRC classify drivers as employees, as a result of the recent judgment, it has been suggested that Uber could owe more than £1.5billion in VAT payments.
Jo Maugham, a barrister and Director of the Good Law Project, said via social media: “This is my estimate: Dara Khosrowshahi was briefing (and an insider suggesting) c.£1.5bn some eighteen months ago since which time Uber has accumulated significant further liabilities and interest.”
In accounts published on 8 October 2019, Uber London Limited (ULL) detailed their initial concerns, which included a possible £1billion tax bill to the Exchequer should the firm be classified as a ‘transportation’ company. The minicab app giants have always classified themselves as a software company which is exempt from the tax.
According to the accounts submitted, being classified as a transportation provider would result in 20% VAT on Gross Bookings or on the service fee that ULL charges the drivers, both retroactively and prospectively.
The accounts filed stated: “The Uber Group believes that the position of HMRC and the regulators in similar disputes and audits is without merit and is defending itself vigorously.”
Moving forwards it remains unclear how the current Uber business model can incorporate both new VAT charges and the cost of workers’ rights without significantly raising the fares on all journeys.