HMRC escalates VAT dispute with Uber in the UK

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The taxation authority in the UK is currently engaged in a dispute with Uber, the ride-hailing app, regarding VAT.

Uber claims that HM Revenue & Customs has questioned the amount and method of VAT application to its mobility business in the UK.

In response, the tax authority has determined an additional tax of £386 million ($491 million) owed by the company, according to Uber’s half-year results published on Tuesday.

Uber intends to challenge this decision at the UK tax tribunal.

However, the company recently paid the £386 million to HMRC, which will be refunded if Uber succeeds in its appeal.

This development follows Uber’s agreement with HMRC last year, wherein it paid £615 million to the tax office after losing a case at the UK Supreme Court in 2021 regarding the VAT treatment of its drivers.

Uber had contended that it was exempt from VAT as its drivers were considered self-employed contractors. However, the Supreme Court ruled that the drivers should be classified as workers.

The ongoing tax dispute revolves around changes made by the San Francisco-based company to its business model since March 2022, subsequent to the Supreme Court ruling.

HMRC has challenged Uber’s utilization of the Tour Operators Margin Scheme, a set of rules aimed at simplifying VAT for tour operators, which are also used by minicabs and other ride-hailing apps.

Uber argues that all private-hire operators in the UK should pay VAT based on the profit margin of a trip rather than the total cost, as asserted by HMRC, according to sources familiar with the matter.

According to Uber, “urgent clarity is needed for the whole industry to safeguard drivers and passengers.”

HMRC states, “We have a strong track record in ensuring large businesses comply with tax obligations and actively challenge them when necessary.”

Dan Neidle, former head of tax at Clifford Chance law firm and founder of think-tank Tax Policy Associates, commented that it is difficult to determine which party will ultimately prevail in this dispute.

Neidle added that the resolution of this dispute could take up to a decade, with appeals and counter appeals being likely.

No court hearing date has been announced at this time.

Last week, Uber achieved a victory in the UK High Court regarding the application of VAT by private cab operators and taxi-hailing firms outside London.

This case aimed to level the playing field with competitors following Uber’s loss at the Supreme Court in 2021.