Settling a £615m bill in back tax may seem excessive. However, due to a lack of proper VAT treatment and recent court rulings, that's exactly how much Uber recently paid UK tax authorities.
The amount in question was confirmed on 14 March 2022, following a ruling that required Uber to settle all outstanding VAT and change their VAT treatment process immediately. Fast forward to 31 October 2022, and all is settled.
His Majesty Revenue Customs (HMRC) confirmed receipt of all outstanding VAT claims for the periods before their business model change occurred. So what does that mean for travel costs in the UK, and can businesses now recover VAT on their Uber expenses?
Uber vs HMRC: A matter of VAT
How did the dispute with Uber originate, and how does it change the overall VAT treatment for businesses? Here's what you need to know.
UK tax authorities investigated Uber's increasingly high revenue and recognised that the company should have added VAT to the costs of the services for some time but did not.
Prior to the ruling on 14 March 2022, Uber believed they were VAT exempt. Uber argued that their drivers were considered ‘independent contractors.’ Consequently, the drivers were responsible for the VAT treatment as Uber considered them 'self-employed.'
As the investigation continued, UK tax authorities found that Uber treated itself as an ‘agent’ for VAT purposes, which means it accounted for VAT at 20% on the commission it charged its drivers. In addition, although claiming that the driver was, in fact, responsible for any VAT liability, most drivers' turnover would not have exceeded the VAT registration threshold of £85,000 per year; as such, no VAT was due on the driver's share of the fare.
However, following the landmark court ruling that Uber drivers were in fact ‘workers’ with rights, Uber was mandated by UK tax authorities to charge 20% VAT from March 2022 and pay backdated VAT totalling £615 million.
New 20% VAT charge added to UK Uber fares
Since the settlement and the model change, Uber has confirmed that 20% VAT is charged for their service in the UK. The difference in VAT treatment means that Uber and other ride-hailing apps will enter a contractual agency relationship, with the ride-sharing provider as the principal for VAT, not the driver.
Ride-hailing apps vs taxis: VAT treatment
There are currently no claimable expenses in the UK for taxis and public transport, as they are VAT exempt.
As Uber is now classified as a principal and not an agent, VAT is charged at 20% by Uber directly. This differs from taxis, where the drivers themselves are responsible for charging VAT (if they meet the VAT threshold). Companies can now add business-related Uber costs to the list of recoverable expenses. For more information on recoverable expenses in the UK, view our UK VAT refund guide here.
Recover VAT on business travel and entertainment expenses with VAT IT
Your business can claim back its expense on business travel and entertainment (T&E), including the VAT incurred on Uber costs in the UK. For more information on how to successfully recover your VAT, contact our experts, who can help you ensure significant VAT savings.
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