Uber case has wider implications

Three parties

VAT can be complicated when there are three separate parties involved in a deal. In the case of Uber, the relevant parties are Uber as the taxi control company, with bookings made by passengers through its app, along with the self-employed driver and the final customer. With VAT, the key question is always: who is supplying what and to whom? In other words, there is a need to identify the agent and principal to establish the supplier. A high court ruling decided that Uber supplies taxi rides to its customers, and the self-employed drivers are providing their services to Uber.

Note. Under UK law, any form of transport that is designed to carry fewer than ten passengers is subject to 20% VAT. Ten or more passengers means zero-rated VAT, e.g. trains and buses.

Wider implication

Every trading situation involving three parties has different contracts and trading arrangements. But the two key issues  to consider are as follows:

• what do the contract and trading terms say is happening: who is selling services to whom?
• what is the commercial reality of an arrangement: who does the customer think is the supplier when they part with their money?

Time for action

For any business that has three-party deals, the Uber decision shows that it is important to review whether they are getting the VAT treatment right. If both suppliers are VAT registered and account for output tax on their share of the cake, then HMRC interest will be minimal. There is no leakage of VAT. But if the principal supplying the service to the customer is not VAT registered - because annual sales are less than £85,000 - there is a potential tax loss to the Exchequer.

In particular, businesses like salons that use self-employed stylists, taxi firms (especially those with a high volume of account business), internet-based services, etc. should take note.