Uber's £1bn VAT Clash: Will the ridehail giants claim back their HMRC tax payment?

Uber finds itself entangled in a legal struggle with HM Revenue and Customs (HMRC) over a significant £951 million in VAT payments. This dispute centres on whether the ride-hailing giant should pay VAT on its total revenue or merely on its profits.

Since March 2022, HMRC has levied a 20% VAT on Uber's fares and delivery sales. However, Uber argues that this VAT should only apply to its profit margins rather than the gross revenue.

This argument is grounded in the application of the Value Added (Tour Operators) Order 1987, which allows for VAT to be remitted on a calculated margin. Uber’s latest filings reveal it considers £631 million of VAT paid in 2023 as a debt expected to be reclaimed. Additionally, the company settled a £150 million VAT bill in January and received a further £170 million charge later in the year.

Uber's UK operations were restructured in March 2022, positioning its UK subsidiaries as merchants of transportation, thereby necessitating VAT remittance under the VAT Order 1987. However, HMRC has challenged this approach, leading to a series of assessments and payments totalling £386 million for the period between March 2022 and March 2023, and an additional £106 million in September 2023.

Despite these payments, Uber asserts they do not accept HMRC's assessments. The company has recorded these amounts as receivables, confident of a successful appeal that will see these funds, along with interest, returned. Uber anticipates further assessments for previous and future periods, which it will need to pay to continue with its appeal.

Recent filings with Companies House say:“The payments do not represent our acceptance of the assessments. The payments are recorded as a receivable because we believe that we will be successful in our appeal, upon which, the full amount of our payments will be returned to us with interest upon completion of the appeals process.”

The start of this VAT conundrum can be traced back to a 2021 Supreme Court decision which reclassified Uber’s drivers as “workers” instead of self-employed contractors. This landmark ruling resulted in a £615 million VAT settlement with HMRC and established ongoing VAT obligations.

HMRC insists that the standard 20% VAT should apply to Uber's entire fare revenue, countering Uber's claim that the Tour Operators’ Margin Scheme (TOMS) should apply, limiting VAT to profit margins. This contention is currently under appeal, following a recent ruling favouring Uber's competitor, Bolt, which upheld TOMS eligibility.

Despite achieving a turnover of £5.3 billion and revenue of £3.4 million in the UK last year, Uber posted a pre-tax profit of £32 million, a significant increase from £5 million the previous year. Nevertheless, Uber reported a net loss of $654 million (£524 million) in the first quarter of this year, marking a critical phase in its financial journey.

As Uber prepares to vigorously defend its tax strategy, the outcome of this legal battle will be pivotal, not only for Uber but potentially for the wider gig economy and its tax obligations in the UK.