Uber’s UK VAT liability confirmed

Earlier this week Uber London Ltd filed its full accounts up until December 2018 at Companies House. 

The big news wasn’t that the division made a relatively meagre profit of £5.1m. (The profit is hardly indicative of anything due to the group’s structural complexity.)

It was Note 13 which recounted the following about Uber London’s contingent liabilities: 

The most newsworthy part was arguably this one: “the Uber Group is involved in an ongoing dialog with HMRC, which is seeking to classify the Uber Group as a transportation provider. Being classified as a transportation provider would result in a VAT (20%) on Gross Bookings or on the service fee that the Company charges Drivers, both retroactively and prospectively.”

Uber London’s accounts do not provide any indication of the total sum being recorded as a contingent liability at Uber London’s parent, the Uber Group.

But various sources tell us the bill could be as large as £1bn, or more. These are not small sums.

But the statement is striking for other reasons too.

First, Uber says it’s in an “ongoing dialog” with HMRC which hints at a negotiation taking place to potentially lower Uber’s liability. But that’s a big no no for HMRC. The tax authorities are not supposed to cut deals with corporations on unpaid back taxes, not least because of the scale of public outrage associated with legacy sweetheart deals, which prompted far-ranging internal policy reviews. 

HMRC told FT Alphaville that on an ongoing basis it investigates about half of the UK’s large businesses at any one time. As part of that process companies are man-marked with HMRC officers whose job it is to speak to the financial people at the organisation. So it could be that Uber is treating this sort of relationship as a dialogue. 

But a source tells Alphaville the view at Uber seems to be that the company sees itself as in negotiations with HMRC, with a view to settling the case before the all-important outcome of its UK Supreme Court appeal regarding its employer status is determined.

The other issue is the nature of the exposure and HMRC’s overall responsibility to capture its full extent.

It’s worth noting Alphaville first alerted readers to Uber’s potential VAT tax exposure in December 2016. At that time it was well known that the tax exposure in question was contingent on Uber successfully defending a tribunal case regarding the employment status of the company’s drivers. A loss would see the company’s drivers classified as workers not contractors, which would incur costly employer liabilities upon Uber, among them a VAT liability.

This is a big deal because the threshold for UK businesses having to pay VAT at the time was a turnover of more than £81K (it’s now £85k).

Since Uber drivers mostly earn much less than that, most do not incur VAT liabilities. If Uber is deemed an employer, however, those revenues would then be deemed Uber’s rather than drivers’ — more than surpassing the VAT threshold and thus exposing the company to potentially huge VAT liabilities from then on.

But the ruling would also reveal how much tax revenue the state will have missed out on over the years because of Uber’s potentially incorrect insistence it is not an employer.

The problem for HMRC is that there is a statute of limitation that ensures the tax authority cannot claim unpaid sums beyond the past four years.

This poses a bit of a quandary for the revenue services. What is a tax authority to do if it suspects a company may be hugely underpaying tax liabilities because of an incorrect employer classification, but cannot claim those sums until a final court ruling about that classification is determined.

One course of action according to Jolyon Maugham QC, who fronts the Good Law project — a non-profit that seeks to support progressive law change in a way that reduces public distrust of the establishment — is for the tax authority to engage in something called a protective assessment as soon as possible. This would allow HMRC to protect its position by flagging that an effective inquiry has begun, in turn allowing it to seek back-taxes from four years before that point even as more time passes.

In Mr Maugham’s opinion it would be a failure of governance at HMRC for the authority not to have issued such an assessment as soon as it was made aware of the issues at stake, irrespective of the pending nature of the all important employer status appeal.

When Mr Maugham made this view known to HMRC back in March in a letter before action, however, the authority’s view seemed to be that it would need to wait until the case was determined to do so. And so, in bid to get to the bottom of the legalities of the situation, the Good Law Project announced on May 29 of this year that it would be suing HMRC via judicial review for failing “to stem losses due to Uber’s tax dodging.” 

It is Mr Maugham’s contention that up to £1.1bn of tax is at stake. You can read Mr Maugham’s witness statement, which offers more details on how that figure is arrived at, here. 

But there’s another issue in play. As an interested party in the action, Uber has a right to legally represent its interests in the case if it wishes. One of those interests is that the case does not inadvertently expose its private tax affairs to the general public given that in the UK, all tax affairs are deemed private and confidential, including the issue of whether protective assessments have been initiated.

Uber has made it known to Mr Maugham that it will be engaging in the case to ensure any privileged information revealed by the process stays private and confidential and subject to an order that it is “protected from onward disclosure to third parties”. 

A hearing on the matter is due on November 6 at the High Court.

Of course, the fact that Uber London since filed a company account noting that a dialogue with HMRC over a VAT liability is ongoing implies some sort of protective assessment may already have been initiated. So to some extent the cat is already out of the bag.

Commenting on the case, Mr. Maugham told FT Alphaville:

It has taken three years for us to force HMRC to collect tax from Uber. Many hundreds of millions of pounds will have been lost because of its inaction. We will now turn our attention to ensuring that other big transport suppliers — such as Addison Lee — comply with the law. And to those, like Amazon, operating arrangements that seem to us to be similar in character.

In response Uber’s spokeswoman said: 

We can't comment on any discussions with HMRC but we will always fulfil the tax obligations in any country in which we operate.

Finally, HMRC told Alphaville:

We don’t comment on identifiable businesses. HMRC will always make sure that every business, no matter its size, pays all the taxes due under UK law and we don’t settle for less.

One thing’s for sure. It’s a tax case that could have a huge bearing on Uber’s profit-and-loss at some point, with equally important implications for Uber’s operations in Europe, which also bear similar VAT exposure.

High Court Quashes Wakefield Taxi Fees

Friday, 7 December, 2018

The High Court has quashed the licensing fees charged for private hire vehicle and Hackney carriage licences set by Wakefield City Council, following a claim for judicial review by the Wakefield District Private Hire and Hackney Association.
 
His Honour Judge Saffman, sitting as a deputy judge of the High Court, held that the fees charged by Wakefield were unlawful. In particular, the Council had wrongly interpreted section 70 of the Local Government (Miscellaneous Provisions) Act 1976 and had erroneously charged the costs of enforcement against drivers (for speeding, bad parking, dressing inappropriately and a miscellany of uncivil or illegal conduct) to the control and supervision of vehicles. Wakefield’s case had been that the costs were properly accounted for against vehicles because the errant drivers were driving vehicles. The learned judge described that as ‘stretching beyond breaking point’ the language of the section.
 
The case is of wider importance as it dispels any suggestion that there is a general principle of law that licensing regimes should be self-financing. The judge made it clear that a local authority’s entitlement to recover from the licence fee the costs of administering a licensing regime is governed by the words of the empowering statute. Where Parliament has awarded local authorities a broad discretion (e.g. “such fee as they think reasonable”) the courts have upheld policies of full cost recovery on the sole ground that the policies, being reasonable, are intra vires; but where, as in s 70 LGMPA 1976, the power to charge a fee is circumscribed by reference to specific heads of recovery, recovery is restricted to those specified heads. Licensing authorities are creatures of statute, and have no powers beyond those which statute has given them.
 
In the course of the High Court action it became apparent that Wakefield Council has overcharged private hire vehicle licence fees by an aggregate sum in excess of £1million, which will form the subject of a claim for restitution.
 
Gerald Gouriet QC and Charles Streeten acted for the successful claimant, with the assistance of A2Z licensing

TAXI LEAKS EXTRA BIT :

As the article states, the greater legal significance of the judgment was to recognise that there is no general principle of law that requires licensing regimes to be self-financing, but for members of the Wakefield trade, it might be the prospect of being able to bring a restitution claim for in excess of £1 million that was the most significant thing to come out of the case, which was heard by the High Court in Leeds last Wednesday (5 December 2018).

For the sake of completeness, I should advise that the Council was refused permission to appeal to the Court of Appeal, but does, of course, have 21 days in which to renew its application directly to the Court of Appeal.

David B Wilson

a2z Licensing 

And So It Begins....Visa Doubles Transaction Charges to 8%

£1bn assault on the High Street: Shopkeepers suffer as Visa hikes fees on card payments. Unfortunately, this will give the green light to increase transaction charges for Taxi drivers taking Card payments. 

It's estimated that shopkeepers will pay £1billion extra a year to payments giant Visa after it hiked fees.

The increase comes as the Taxi trade faced a boom in customers who want to pay by card.

But what many passengers don’t realise is that every transaction costs the driver, and Visa has been accused of cashing in, by hiking its fees.

Card sharks: Taxi drivers have seen a massive increase in customers who pay by card for even the cheapest journeys meaning that drivers with company's that charge the extra 20p on top of the transaction percentage, pay even more in fees

Experts warned that some will see their bills more than double. 

Obviously it's not just Taxis who will be affected, payments consultant CMSPI said that increased card costs will hit Europe’s shops for £2billion.

In the UK alone, which has embraced contactless cards and chip and pin, the bill will be £1billion.

Visa Europe has doubled charges since 2015 from an average 4p per transaction to 8p, says CMSPI. 

Firm’s crippling £26,750 card bill 

Hardware store owner Vin Vara says his firm is struggling because of huge bills from credit card companies.

Vara, 58, employs 38 people at 11 Tool Shop stores in London and lost £20,400 in fees last year as shoppers paid by credit card. 

Some 60 per cent of customers pay by card and he expects the bill to rise to £26,750 this year.

He said: ‘People don’t understand the damage this can do. I’m scared for others on the High St about what’s going to happen to them.’

It used to keep just 1.5p of this as profit but now takes 5p after cutting costs, the consultant said.

CMSPI chief executive Brendan Doyle said: ‘This is incredibly disappointing. Visa, a multinational that consistently reports profit margins in excess of 50 per cent on multi-billion-dollar revenues, is piling cost after cost onto retailers and the latest change will be particularly hard on struggling small businesses.’ 

He added that CMSPI will complain to the European Commission about the hike.

Visa has become more aggressive since it was bought by its US sister firm for £15billion in 2016.

Until then, Visa Europe had been owned by banks, including Lloyds and Royal Bank of Scotland, and they made billions from its sale to namesake Visa Inc. 

The American company’s chief executive Charles Scharf plotted to hugely increase fees – in 2015, he said he hoped to ‘expand yields in Europe’.

MPs and business groups called for regulators to step in.

SNP MP Stewart Hosie, of the Treasury Select Committee, said: ‘It’s a scandal card issuers’ fees have increased massively. I would hope and expect card issuers would think again before they impose these costs.’

Meanwhile, High Street retailers face average hikes for UK card fees of 75 per cent, and other European card costs will come close to trebling with an increase of 189 per cent.

James Lowman of the Association of Convenience Stores said: ‘We encourage the Payment Systems Regulator to look closely at these fees to ensure fairness.’

Andrew Cregan, at the British Retail Consortium, also backed intervention by the regulator.

Visa said: ‘The figures quoted are misleading and over-inflated. Our pricing means we can invest in world-leading cybersecurity and consumer protection, in innovation such as contactless and mobile payments, and in providing a global network which enables billions to make purchases safely, securely and reliably.’

TAXI LEAKS EXTRA BIT :

In the past, we've seen many retailers refuse to take Amex because of the time it takes them to pay up. 

We could now see the same exclusion notices regarding payment with Visa cards.

The London Taxi trade haven't been granted the right to choose how they are paid as our largest org says "it was a done deal'....and it was the drivers who were done!

The trade were promised a increase in bums on seats and a massive publicity campaign from TfL.....it just never happen.