Tax Journal

Why I’m challenging Uber

Date: 
1 June 2017
SPEED READ

Last year the Employment Tribunal held that Uber was supplying transportation services. If Uber is supplying transportation services, it should be charging 20% VAT on all its fares and paying that money over to HMRC: tens or hundreds of millions of pounds every year. As director of the Good Law Project, I have issued proceedings in the High Court against Uber with the aim of making sure it does just that.

Jolyon Maugham QC (The Good Law Project) explains why he has issued proceedings in the High Court against Uber to ensure that it pays VAT on supplying transportation services.
 
There is a public interest in ensuring that companies pay the tax they owe. If we don’t believe others are made to pay their taxes, it undermines our willingness to pay ours. Why would we if we think they don’t?
 
Last month, under the auspices of the Good Law Project, I issued proceedings in the High Court against Uber London Ltd. The proceedings were for a declaration that Uber should, and an injunction that it must, issue a VAT receipt for a journey I took from my chambers to a professional client in the West End. The VAT on that journey – if VAT there is – is only £1.06. But the case raises questions of very real significance.
 
Technical questions first. 
 
Taxi journeys are subject to the normal VAT regime – they are VATable if supplied by a taxable person. The only question here is, ‘who made the supply’? Uber’s publicly stated position is that the supply was made by the driver. Its role is to introduce driver and passenger. But this conceptualisation of Uber’s role has now been rejected twice – once by a UK Employment Tribunal and once by an EU advocate general. Both said that Uber was supplying transportation services. 
 
True, those decisions were not in a tax context. But, you may think, a UK tax tribunal would be likely to reject it too. The notion of taxable supply is wider even than the muscular Autoclenz v Belcher [2011] UKSC 41 approach to identifying the ‘real’ contract applied by the Employment Tribunal. And you would expect the man on the Clapham Omnibus, making slow progress through a dense thicket of Toyota Priuses, to reject as bearing no relationship to reality Uber’s contention that it is a business to business brand making business to business supplies. 
 
And Uber cares profoundly about the answer. 
 
If it is the driver who makes the taxable supply, he (or rarely she) will typically be below the VAT threshold and so will normally not need to charge VAT. But if it is Uber making the supply, that supply will be VATable. If the High Court decides that Uber has to issue a VAT invoice to me, it will only be because it accepts my argument that Uber made a taxable supply to me. And if it made a taxable supply to me, it will have made a taxable supply to all its other customers too. 
 
Looking forwards, Uber will need to charge VAT on all fares. That will dent its attractiveness to customers, or its profit margins, or more likely both. And looking back, it will have a huge liability to unpaid output tax. Together with interest that liability could top £1bn. And that’s in London alone – Uber is likely to have VAT liabilities in other UK and European markets in which it operates.
 
So, technically interesting. And plausible. But why take the case?
 
There is, as yet, no public sign that HMRC is investigating Uber’s VAT liability. Of course, pre-litigation, HMRC operates under very strict duties of confidentiality. Perhaps it is investigating and we do not yet know? But, then again, Uber has operated in the UK for five years. And there is no suggestion in its most recently-filed accounts (for the year to 31 December 2015) that it has made any provision for a VAT liability. And those accounts were signed on 30 September 2016 and record no significant post-balance sheet events.
 
And there is a widespread public perception that we in the UK tolerate US tech companies, in particular, engaging in financially meaningful tax avoidance. This public perception may well damage ‘tax morale’ – the propensity of other taxpayers faithfully to pay their own taxes. And it will also damage trust in the political establishment in a way that over time erodes the proper functioning of our democracy and society. 
 
This is not a healthy state of affairs.
 
And nor can we, with hand on heart, say this perception has no foundation in reality. There is good quality evidence that several of those same large US tech companies have paid very substantially higher amounts of corporation tax in other EU jurisdictions than they pay here. Those differences are not easily explicable by reference to different rates or structures or tax laws or other objective factors. When I put those differences to a senior civil servant I was told, ‘Ah, but the revenue authorities on the Continent are political.’ My response, that then then French finance minister had said the same about the UK, rather stumped him. 
 
At the moment our government ignores these problems. There is no move to make HMRC more responsive to public concern. There is no move to open up to public scrutiny these highly fraught and politicised decisions. Indeed, we have walked backwards. The tax assurance commissioner’s role is now a careerist’s stepping stone. That description implies nothing about the quality of the individuals who hold and have held that role. But the fact of what the role has become means we can no longer sensibly pretend it performs any assurance function. 
 
This case tackles – its intention is to tackle – this unhealthy state of affairs. If a High Court judge holds that Uber has tried and failed to dodge £1bn of VAT, and HMRC has done nothing about it, the public will know that that which they long suspected to be true is true in fact. HMRC will be discredited. And further questions will be asked about the access Uber lobbyists have had to government. And what that access delivered to them.
 
If you recognise these concerns exist already, if you recognise they are destructive of the polity, you should want them addressed, you should want change. The purpose of this case is to deliver it. 
Issue: