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Uber obstacles

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The PAC asked HMRC executives earlier this month why HMRC had not issued protective VAT assessments to Uber, following the Employment Appeal Tribunal’s recent finding (in Aslam, Farrar and others v Uber BV Ltd and others  Case Nos 2202550/2015 & others) against the company that two of its drivers were workers, rather than self-employed contractors.

Commenting on the decision, Carolyn Brown, employment partner and head of RSM Legal said: ‘The likelihood is that Uber will try to appeal the decision to the Court of Appeal which means their fight may not yet be over. If Uber cannot get this decision overturned though, it will have a significant impact on their business model. With control being a critical factor in the assessment of the taxi drivers’ working status but a key requirement for the service Uber provides, something may have to give.

‘Probably a more pressing concern for Uber though is the possible consequences it may have on their exposure to tax and NICs liabilities,’ Brown said. ‘As it stands, Uber would not be obliged to pay employer NIC in respect of their drivers if they are self-employed. If they are workers though, they may be exposed to a significant NIC liability. There may also be a substantial VAT liability.’

PAC member, Shabana Mahmood, said the tribunal had ‘found that Uber is supplying transportation services, the result of which is that VAT should be payable on all its transactions’.

However, Jim Harra, HMRC’s director general of customer strategy and tax design, said: ‘I am not aware that the tribunal made any ruling regarding principal and agent, which is what is critical to VAT law, not the workers’ rights’.

While prevented from commenting on this specific case, which is under appeal, Jon Thompson, HMRC chief executive, said that, since losing the Secret Hotels case in 2014, HMRC’s problem has been to establish who is the agent and who is the principal in transactions between a customer and two other parties. HMRC argued in that case that the website was the principal and responsible for VAT, but the taxpayer argued successfully that it was the agent.

HMRC has tried, and failed, on five occasions since then to argue that the organisation the customer is dealing with is actually the principal. It has also tried to establish that the agent is actually the principal. Referring to recent EU cases, Jon Thompson confirmed that HMRC is taking legal advice. ‘Consumers use their smartphone or iPad or whatever and interact with a website or whatever, thinking that their contract is with that organisation, but it actually turns out it is not, and that the organisation is an agent for the principal. We will continue to test this’, he said.

Meanwhile, tax barrister Jolyon Maugham QC provided an update on his case against Uber. Maugham said the EAT decision gave a ‘significant boost’ to the contention underlying his case against Uber ‘that it is it, and not its drivers, who are supplying transportation services.’

‘More difficult has been how, in practice, to advance a claim against Uber worth over £1bn in avoided VAT with a budget of a little over £100,000 in a setting where the loser is liable to the winner’s costs,’ he said.

Maugham’s strategy involves advancing a claim in a setting where the loser is not liable to pay the winner's costs. His claim was made in a VAT return to recover VAT on the cost of an Uber taxi ride. If HMRC rejected the claim, Maugham could appeal in the tax tribunal. ‘Were I to lose, I would not have to pay HMRC's costs. And if I won, it would be because a specialist tax tribunal had decided that Uber was charging VAT and – in such circumstances – HMRC would have no alternative but to act in the public interest and collect that VAT.’

Maugham said that he has now received a response from HMRC to the claim. ‘That response is not a model of clarity but I believe – it is not possible to be certain – that it amounts to a rejection of the claim and is a decision against which I can appeal to the tax tribunal.’