Uber Settles £615m in Unpaid VAT: Behind the Scenes
January 4, 2023
Want to take an Uber in the UK soon? Behind the scenes, they've run into a few hiccups, but in the end, it's going to be a smooth journey. In this post, we'll discuss the latest developments around the £615 million settlement Uber made with UK tax authorities and how it may affect your company.
In the grand scheme of things, paying £615 million to settle tax arrears could be a little much. This is the sum recently paid by Uber to UK tax authorities as a result of improper VAT handling and subsequent court judgments.
On March 14, 2022, the relevant sum was finalized after a court mandated that Uber pay any unpaid VAT and implement a new VAT treatment mechanism immediately. Fast forward to October 31, 2022, and everything is resolved.
His Majesty's Revenue and Customs (HMRC) verified receipt of all pending VAT claims for the periods before their business model change happened. What does this imply for the price of travel in the UK, and can companies now recoup VAT charges incurred by using Uber?
Uber Against Hmrc: An Issue of VAT
What led to the disagreement with Uber, and how will it affect how VAT is handled for other firms in the future?
UK tax authorities looked into Uber's rising profits and determined that the firm should have included VAT in the prices of its services but had not done so for some time.
As of March 14, 2022, Uber mistakenly assumed it was free from VAT. Uber claimed that its drivers were not employees but rather "independent contractors." Because Uber considered its drivers to be "self-employed," it was up to them to pay their own VAT.
Following further inquiry, UK tax officials determined that Uber accounted for VAT at the standard rate of 20% on the commission it charged drivers. Also, despite what was said, no VAT was due on the driver's part of the ticket because most drivers made less than £85,000 a year, which is the level for VAT registration.
Although the UK tax authorities ordered Uber to begin charging 20% VAT in March 2022 and pay backdated VAT totaling £615 million after a historic court ruling that Uber drivers were in reality "workers" with rights, Uber has appealed both decisions.
New 20% VAT Fee Imposed on UK Uber Fares
Following the settlement and business model shift, Uber has acknowledged that 20% VAT is levied on their service in the UK. As a result of the different VAT treatment, Uber and similar ride-hailing applications will enter into a contractual agency relationship in which the ride-sharing service, rather than the driver, will be the primary for VAT purposes.
How Does VAT Work in Taxis vs. Ride-Hailing Apps?
Taxis and public transportation are exempt from value added tax in the United Kingdom, so there is no way to deduct their costs.
Uber now charges VAT at the standard rate of 20% since it is considered a principal rather than an agency. In contrast, taxi drivers are often responsible for collecting VAT on their own (if they meet the VAT threshold).
In addition to gas and mileage, Uber expenditures incurred for company business are now fully reimbursable. Take a look at our UK VAT refund guide for additional information on eligible costs.
With VAT IT, you may be able to get back the value-added tax you paid on business trips and social events.
Your firm may claim back its spending on business travel and entertainment (T&E), including the VAT paid on Uber charges in the UK. For more information on how to effectively recover your VAT, contact our specialists, who can assist you in ensuring large VAT savings.