Aren’t we lucky in our tax QCs?

Soapy Joe:

3) as things stand, and applying the reasoning of the Employment Tribunal decision, Uber seems to be making VATable supplies to passengers of transportation services. And those services are standard rated. In practice, this means that, of every £100 charged to an Uber customer, Uber would have a so-called ‘output’ tax liability of £16.67 (being the VAT on such sum net of VAT as, when VAT is added, gives you £100). And it would need to hand that sum over – less any ‘input’ tax – to HMRC;

OK, seems reasonable. Easy test – does Addison Lee pay VAT?

But then there’s this:

(4) output tax is the VAT you charge your customers. And input tax is the tax you are charged by your suppliers. It’s the difference – the tax on the value that you add – that you hand over to HMRC. But does Uber have any input tax? Your employees don’t charge you input tax. Uber might have some external costs on which VAT has been charged – but not many. On the assumption (see (1) and (2) above) that the VAT reality of Uber’s business is that it is engaging drivers and supplying transport services to passengers, the vast majority of its expenditure will be the money it pays to drivers. But (with perhaps a tiny number of exceptions) drivers don’t charge Uber VAT on their fares. Indeed, they are incentivised to earn less than the VAT registration threshold. If they earned more, they would have to hand over 16.67% of their profits to HMRC in VAT;

Err, no. If it is, as a whole, a Vatable supply then as soon as a driver goes above the registration threshold then they must charge it to Uber. It doesn’t come from their “profits”, which is their labour income anyway.

Aren’t we lucky to have a system where a journalist needs to explain this to a tax QC.

26 comments on “Aren’t we lucky in our tax QCs?

  1. KJ – I think with tax experts it’s like one of Keith Vaz’s parties – a race to the bottom.

  2. I guess most of their costs would have had VAT payed on it and therefore mostly it is only their profits where they have to pay additional VAT .. but in general this just seems like very lose phrasing with a lack of attention to detail being given.

  3. Surely if you are an Uber driver, you want to be Vat registered. You can charge Uber Vat (they won’t care), and in return you can recover the Vat you pay on fuel, car services etc etc.

    Contrary to popular belief, you can register for Vat at any level of turnover, is just there is a maximum level of turnover after which you must register.

  4. > Easy test – does Addison Lee pay VAT?

    Dunno about Addison Lee, but the whole point is that agents don’t pay VAT. They’re merely charging drivers for their services. The passenger pays the driver £60, the driver pays £12 (£10 agency fee + £2 VAT) to Uber, and Uber in turn hands the £2 VAT over to HMRC. Even though in practice the payment is handled by Uber, for VAT purposes it’s as if you’ve handed cold hard cash to the driver.

    > as soon as a driver goes above the registration threshold then they must charge it to Uber

    I’m afraid you’re mistaken. As per my first point, drivers don’t charge anything to Uber. It’s Uber who charge the drivers for agency services. I’ve just looked at my last Uber invoice: it clearly says “Issued on behalf of [driver name] by Uber B.V, Amsterdam”. There’s no VAT on the invoice.

    If the driver has to register for VAT, it’s the driver who charges it to their passenger. I have no idea how that works in practice with Uber’s fixed fares.

  5. I think the auction houses might fancy a word with Soapy Joe about his declaration that Uber should charge VAT on all its client’s sales to customers. If you sell the family silver at Sotheby’s the buyer is not charged VAT (as the vendor is not VAT registered), yet the buyer writes a cheque to Sotheby’s, not direct to the vendor, and Sotheby’s passes on the proceeds, after their charges.

  6. Maugham is working on the basis that the drivers are Uber’s employees. If that is true, they can’t be doing anything on their own accounts, so Uber is providing services to passengers rather than the drivers doing it. So VAT should be accounted for by Uber.

    It all makes a certain amount of sense – but only if you take the tribunal’s decision that the drivers are workers for employment rights purposes as meaning that they are employees of Uber for VAT purposes, and that’s not necessarily true.

  7. Too much to expect competence, although one could hope for some humility, in a man who exemplifies the description “dickhead” perfectly, given that the mass atop his neck bears a remarkable resemblance to a glans penis

  8. Actually, re-reading it he has considered the point a bit more. He’s starting from the Tribunal finding that it was Uber that provided the supply of transport to the customers, from a contractual perspective. The employment (or otherwise) of the drivers is part of that analysis.

    He then says that because the contractual position is that Uber is making the supplies, Uber is responsible for the VAT. But that’s assuming that the decision of an employment tax tribunal is binding for VAT purposes, even though for VAT you would normally (so far as I’m aware) look at the contracts more closely than you would for employment law and from a different perspective.

    That’s a bit of a leap. My wife saying I’m driving too fast doesn’t mean I’m speeding… I might be, but not necessarily.

  9. You can have people who are employees for tax purposes (PAYE and NIC) but are contractors from an employment law point of view. This is the case with some agency workers.

    There’s an open (I think it’s open, anyway, it may have been settled since I worked somewhere where this was important) question over whether the VAT treatment of a supply must necessarily follow the employment law position vis a vis agent/principal – again, particularly pertinent in the agency world. That is to say, if you supply an agency worker where you are the principal from an employment law perspective (which does not necessarily imply that the individuals are employees) you may not be the principal for VAT.

    So, in theory, you can have an agency business where you contract with an individual (the worker) and a client. The client pays you for the services of that worker. The worker is a contractor, but their contract is with you. You treat them like an employee for tax and they have rights to statutory benefits (SSP, SMP, pensions & holiday pay) but are not *actually* your employee.

    You charge your client the wage of the worker, which is not subject to VAT. You add your management fee which is subject to VAT. So the substance is kinda that the client is paying the wage of the individual (no VAT, but there possibly would be if the individual was above the threshold) and your fee. Though the contractual relationship is with you. It’s all fun. HMRC are/were not at all in favour of this being a thing.

    “It all makes a certain amount of sense – but only if you take the tribunal’s decision that the drivers are workers for employment rights purposes as meaning that they are employees of Uber for VAT purposes, and that’s not necessarily true.”

    Putting aside the general uncertainty of the law here (last I looked the court/tribunal had agreed with a taxpayer on the principle that VAT doesn’t follow employment law, but HMRC weren’t accepting that it had any implications beyond a specific case) this likely depends on what kind of employees the drivers are deemed to be.

    It’s a messy issue that arises where businesses inputs are primarily labor, and their outputs are to consumers or organisations that cannot recover their VAT, making that VAT a real and material cost to one of the two parties. If there are grey areas (such as principal/agent questions) then there will be conflicts. It’s great for Joylon and his mates because the only people sure to come out on top are the lawyers.

  10. HMRC never accept that a case has general application beyond the specific circumstances of that particular taxpayer unless they won, in which case it applies universally 🙂

    Having said that, I did wonder about the Rangers (Murray Group) case on EBTs a couple of years ago. After HMRC lost it, I got some letters for clients where HMRC said, essentially, “Do you want to settle? We’ve taken a number of high-profile cases to court, you know“, but forgot to add “…and we lost” – though I can see how that might have weakened their negotiating position a little 🙂

  11. I think it is fairly widely accepted that employment lawyers, and tribunal judges, are much thicker than their tax counterparts.

  12. Soapy Jo’s real agenda is to damage Uber. Quite why escapes me but no doubt he has persuaded himself that it is a highly principled thing to do. He is, above all, a man of lofty principles who believes in MOAR tax. We know because he is always writing about how lofty his principles are. If this case goes against Uber in the UK, it will presumably then change the nature of their trading in other EU countries and will be very damaging. Kudos to Soapy Jo.

  13. @Diogenes

    Indeed. Uber are happy, 99% of its drivers are happy, the passengers are happy but for some reason there is obviously a ‘principle’ which requires fighting for.

    Everyone who is currently happy must be made unhappy. The 1% of unhappy drivers almost certainly won’t be better off in the long run in Jollyold Prawn wins

    But that is not the point. The ‘Principle’ must be upheld.

  14. Andrew C,

    > Uber are happy, 99% of its drivers are happy, the passengers are happy but for some reason there is obviously a ‘principle’ which requires fighting for.

    Bastiat’s seen and unseen. It’s entirely possible for 100% of market participants to be happy, but only because they’ve managed to exclude all the unhappy people from participating in that market.

    With Uber there might be some would-be drivers who would prefer the stability of salaried car-driving employment to the risks of self-employment. Mind you, I haven’t seen much evidence that any of these people actually exist.

    On the customer side, Uber excludes people without a smartphone and a bank account. I imagine the elderly account for a large share of the former. However big a problem this might be, it’s irrelevant to this discussion about the tax and employment status of Uber’s drivers.

  15. With any luck this problem will be solved when Brexit occurs. On that happy day we can drop the “simple” VAT regime (cf Barber – the chancellor who introduced this abortion) and return to purchase tax or even a new and straightforward (more or less) sales tax.

  16. “Aren’t we lucky that we have cunts in Britain who campaign to have supposed VAT loopholes closed so customers have to pay more?”
    That is quality question structure from Tim N, and I’ve read a lot of rhetorical questions in my time.

  17. Its always the buyer paying VAT. The seller collects it if they are VAT registered but only the buyer of a service pays it.

  18. Pellinor/ The Thought Gang

    Just how long do you think it will be before Uber replaces all existing arrangements and puts an end to any ambiguity about who is contracting with the customer?

    As for Jolyon, he does seem to have an unusually keen interest in Uber. But then there is nothing more conservative than a ‘Progressive’ faced with a disruptive technology.

  19. I imagine Uber have a bunch of lawyers, with lower principles than Soapy Jo, considering the potential impact. He is an odious piece of shit and would probably be glad to be called an odious piece of shit to his face. He is then demonstrating his high principles.

  20. Diogenes,

    “Soapy Jo’s real agenda is to damage Uber. Quite why escapes me but no doubt he has persuaded himself that it is a highly principled thing to do”

    Member of Guild of Lawyers races to help of Guild of Black Cab Drivers – general public pays, yet again.

  21. “Just how long do you think it will be before Uber replaces all existing arrangements and puts an end to any ambiguity about who is contracting with the customer?”

    They will be constrained by their business model. They can change the paperwork etc, but if they are wedded to the fundamentals of their operational model then then regulators and taxmen will continue to look at the ‘commercial reality’ as well as (or instead of) the contractual position.

  22. “return to purchase tax or even a new and straightforward (more or less) sales tax.”

    Or how about the radical idea of no taxes on production or sales at all??

    “Its always the buyer paying VAT. The seller collects it if they are VAT registered but only the buyer of a service pays it.”

    Come on. The buyer only pays VAT if his demand is price-inelastic, otherwise he pays nothing and the seller has goods he can’t sell. (Yes ok both sides pay some of it in reality)

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