Bolt ride sharing drivers rules as employees; opens-up VAT liability questions
A UK Employment Tribunal has ruled ride sharing drivers on the digital platform Bolt are employees. The Tribunal judged that “the supposed contract between the Bolt driver and the passenger is a fiction designed by Bolt – and in particular its lawyers – to defeat the argument that it has an employer/worker relationship with the driver”. The ruling means that some drivers will be due sickness and holiday pay entitlement from Bolt.
In VAT terms, this could confirm Bolt is acting as the contract principal, and is therefore responsible for VAT obligations. Since many Bolt drivers would have been below the UK VAT registration threshold of £90,000, this could mean 20% VAT should now be charged.
This ruling follows similar Uber employment cases, see below, that have gone on to change HMRC’s view on the VAT obligations.
July 2024 UK Court of Appeal reverses VAT obligations on private care hire Uber case; uncertainties who is contract principal
On 15 July 2024, the UK Court of Appeal overturned a 2023 High Court ruling (see below) that private car hire firms must collect VAT acting as contract ‘principal’ (DELTA Merseyside Limited & Anor v Uber Britannia Limited). The judgement held that the private cab firm was not always the contracting party, a key assumption of the High Court decision.
The case originated from a 2021 London employment law ruling against Uber, holding that its ride-sharing drivers were its ‘worker’ and not merely ‘contractors’, and therefore Uber the contracting party. As a result, Uber started to charge 20% on all its rides in 2022 in London and the rest of the UK.
Uber then took a case to the High Court in 2023 to force private taxi firms to also be treated as the contracting party and have to charge VAT. It won this case which was overturned this week.
March 2024 UK Budget confirms public consultation on taxing private hire vehicle firms
On 6 March 2024, the UK Chancellor announced an April consultation on levying full VAT on private mini cab providers. This follows the July 2023 High Court ruling – Uber Britannia v Sefton MBC – (see below) that obliged the imposition of VAT since they are the VAT principal and not a mere agent. An appeal against this ruling is scheduled for 9/10 July 2024.
In 2021, Uber in London was found to be an employer of its ride-sharing drivers, and required to charge VAT. It then brought the July High Court case seek the same VAT obligations on private cab operators nationwide.
2 Aug 2023 – HMRC demands from Uber further £386m in VAT; follows Uber win in High Court on requiring all cab companies to collect VAT
Uber has reported that the UK’s HMRC has assessed a further £386 million to settle back VAT liabilities on its ride sharing service. Uber had already paid £615 million following a 2022 High Court ruling that its cab drivers were ‘workers’ and not independent contractors – thus making Uber responsible to charging VAT.
Uber based its initial settlement on the basis its fee margin for the service to the driver as a mere agent – not the whole charge for the ride. In this sense, it considers itself under Tour Operator’s Margin Scheme TOMS operator and VAT is only due on Uber’s profit margin. But HMRC now seems to be challenging this since Uber goes beyond the traditional booking services and controls the drivers’ working patterns and terms. This practise would disqualify it from the conditions of TOMS.
Uber is to appeal this latest assessment.
July 2023 – 16,000 Private hire vehicle (PHV) firms outside London required to charge 20% VAT after Uber wins High Court ruling
28 July 2023 UK High Court rules in favour of Uber UK which was seeking to oblige all private taxi operators to charge 20% VAT on their rides.
In December 2021, Uber was held to be an employer of its ride shares, which also made it the VAT principle in the transaction. This switched VAT obligations from the driver to Uber. Since most drivers were below the UK VAT registration threshold of £85,000 per year, most Uber rides went VAT free.
Following this, Uber began collecting VAT in March 2022. It then brought this test case against Sefton Metropolitan Borough Council, which licenses Uber in the UK. Since the first ruling only related to London, Uber was seeking to level the competitive playing field in the rest of England and Wales. This relates to around 16,000 private cab firms.
The question the Court was required to answer, defining if drivers are self-employed or workers, was framed as:
“In order to operate lawfully under Part II Local Government (Miscellaneous Provisions) Act 1976 is a licensed operator who accepts a booking from a passenger required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking?”
In her ruling handed down on Friday 28th July, MRS JUSTICE FOSTER said “I have come to the clear conclusion that UBL’s (Uber) suggested construction of the 1976 Act is correct. Accordingly, the question posed is to be answered “yes“.
Uber last year has provisioned £615m in tax to UK authorities covering back uncollected VAT.
The UK government confirmed last year that HMRC are monitoring the Sefton case. For ride-sharing platforms, the original Uber hearing has been viewed as only requiring VAT charges on the platform’s share of the fare – not the whole fare. Uber, Bolt and Freenow follow this policy today per their invoices.
Oct 2022: Following 2021 High Court Ruling, Uber UK had requested High Court Declaration Proceedings that all 16,000 UK private tax operators are ‘principal’ contractors and liable to charge VAT
Uber Britannia Limited v Sefton Metropolitan Borough Council is set for a hearing at the Royal Courts of Justice on 3 November 2022. This could force operators to start charging 20% VAT for the first time. Uber imposed VAT on its ride-sharing service March 2022 following a December 2021 High Court ruling that it was the principal service provider – and not the driver – of its ride-sharing services.
Brought by Uber, this case will declare if all private taxi operators outside of London (the High Court ruling centred on London Uber licensing status) must follow Uber, and change their operating terms and conditions with passengers. This would mean the operator is providing the taxi service (principal not agent), so making them responsible for VAT. Whilst private drivers working for these operators are generally under the UK VAT registration threshold of £85,000, and so do not charge any VAT, operators will be over the threshold.
Uber pleadings to High Court for clarification on VAT on private taxi operators
Uber has commenced proceedings against the Council under Part 8 of the Civil Procedure Rules seeking the following declaration from the High Court:
In order to operate lawfully under Part II Local Government (Miscellaneous Provisions) Act 1976, a licensed operator who accepts a booking from a passenger is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.
The UK government has confirmed last week that HMRC are monitoring the Sefton case.
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March 2022: Uber imposes 20% VAT following High Court employment upheld it as a contractor rather than agent
Ride sharing platform, Uber, started imposing 20% Value Added Tax from 23:55 on 14 March 2022. This followed a December 2021 UK High Court ruling on its drivers’ status as workers rather than contractors. The High Court ruled that it was unlawful for a private hire vehicle operator to act as an “agent” between a driver and a passenger. This upheld a prior Supreme Court ruling from February 2021 that ruled Uber’s business model as unlawful in this respect.
This meant that Uber and other ride-hailing companies, not individual drivers, will enter into contracts directly with passengers and will be held liable for anything that goes wrong with the service. This change in contractual agency relationship means for VAT the principal becomes the ride-sharing platform rather than the driver.
Road-side hailed taxis, which are generally operated by self-employed drivers (such as London black cabs) will mostly remain VAT-free as their drivers are generally below the VAT registration threshold.
HMRC were known to be reviewing Uber’s VAT status, looking to make it charge VAT. Previously, it was the drivers’ responsibility. Since most of them were below the UK VAT registration threshold of £85,000, this meant passengers travelled VAT free.
Since VAT is not separated out in invoices, it is not clear if Uber will pass on all or any of the VAT rise.
The UK launched a gig and sharing economies VAT review last year. This is likely to extend to other areas the deemed supplier VAT responsibility onto platforms that facilitate transactions. This follows the UK e-commerce marketplace obligations of 1 January 2021. The EU and OECD is undertaking similar reform reviews (see below).
December 2021 employer status ruling – Uber is principal
The UK High Court last year had upheld an earlier Supreme Court employment law ruling that Uber and similar private taxi firms operating in London should consider their drivers as workers and not contractors. This suggests the taxi firm has a contract with the passenger when it accepts the booking. This means the driver is effectively working for the ride sharing platform and the legal obligations for the ride rest with the platform.
EU and OECD considering gig and sharing economy platform VAT
The European Union is also reviewing this issue as part of its VAT in the Digital Age program. This includes a subsection on VAT on platform economy. This may also opt to make the platforms in the gig and sharing economies the deemed supplier, and therefore liable for the VAT. The OECD has performed extensive work on VAT issues for the gig and sharing economies. The EU’s focus should be broader, although the OECD has now extended to goods and ride sharing.
