Umm, how does this work?

Uber was last night accused of exploiting a loophole to avoid paying millions in tax that helps it undercut rivals.
It was claimed that HMRC has missed out on about £40million in VAT from the controversial taxi app thanks to the legal but highly controversial tactic.
Ride-hailing apps are meant to pay 20 per cent VAT on booking fees they collect from drivers on each fare. But Uber avoids this by treating its 40,000 UK drivers as separate businesses, as most earn less than the £85,000 a year threshold for VAT registration.
This enables the American firm to offer cheaper fares than both traditional taxi firms and rival app-based services, while depriving the Treasury of millions of pounds in tax.

Forgive me because I don’t understand this claim. The booking service is offered by Uber. Why would it make a difference if each of the drivers was VAT registered or not? It’s still Uber offering the booking service, no?

Uber collects an estimated £200million a year in fares, meaning HMRC could be losing out on at least £40million a year in VAT, according to calculations by Reuters.

Ah, so the claim is that the total fee should be Vatable. Which it isn’t, is it? This is Tom Bergin again. Which does actually explain:

Uber avoids having to charge British value added tax on its booking fees by treating each driver as an individual business and then billing drivers across EU borders from its Dutch subsidiary, using an EU VAT provision called the “reverse charge”.

The rule lets businesses sell goods or services to other businesses across EU borders without paying VAT. There is usually no loss of tax revenue, because the importing business collects VAT from its own customers.

But since Uber drivers mostly generate less than the 85,000 pounds a year sales threshold to register for VAT in Britain, they don’t have to collect it.

Gett and mytaxi both bill their drivers from companies within Britain. As the reverse charge does not apply to domestic sales, that means that unlike Uber they must charge drivers VAT.

It is upon just the Uber fee, not the total amount. OK, great.

So Tom, who is it who is not paying this VAT? It’s not Uber, is it? It the driers who aren’t paying it.

But then Bergin likes Dame Margaret, Lady Hodge, and has even been known to speak of Lord Snippa Spud approvingly. So tax incidence isn’t going to be one of those things he gets right, is it?

39 comments on “Umm, how does this work?

  1. All over the world the vested interests are trying to shut down uber and deny consumer choice to maintain their super-normal profits. They are using all the tools of crony capitalism, notably lobbying and ‘compliant’ courts. Funnily enough the vested interests of globalisation generally – IMF, OECD World bank, UN, EU are also being uber-ed and behaving in the same way, impeach Trump, take Brexit to the Supreme court etc. They may yet kill the messenger, but the reality is that all these post war institutions and their tax free bureaucracies are done…

  2. When I was working in London and we got a Secretary to call a black cab I don’t remember paying VAT. Similarly, those cabs that are owned by companies and leased to the driver don’t charge VAT.

    They should be careful what the wish for.

    Or have I missed something?

  3. “All over the world the vested interests are trying to shut down uber and deny consumer choice to maintain their super-normal profits.”

    Indeed. Here in “free market” Hong Kong, crap government policy that hasn’t issued any more taxi licenses since 1992 means if you want to drive a cab, you need to pay someone else £700,000 for their licence not to. Of course the large groups with masses of licenses are shitting themselves about Uber and as they have seats in the legislature, Uber is getting squished while the public get less choice, shit taxis and drivers and poor availability.

    https://webb-site.com/articles/roadcartels.asp

    https://www.hongkongfp.com/2017/05/23/hong-kong-police-arrest-21-uber-drivers-unable-rule-arrests-crackdown-continues/

    http://www.scmp.com/news/hong-kong/economy/article/2097342/uber-must-change-business-fit-hong-kong-taxi-model-transport

  4. The giveaway is in the words “legal but highly controversial”. ‘Legal’ is a matter of law, statute, case law, and sometimes you need a judge to settle an interpretation, but not in this case, apparently.

    ‘Controversial’ only means someone somewhere has decided to make a fuss. ‘Highly controversial’, well now you’re talking: two people have decided to make a fuss!

    #Fake News

  5. Traders who are not VAT registered cannot reclaim the VAT charged on their own business purchases eg fuel, tyres, vehicle maintenance…

  6. The key here is how the reverse charge is implemented.

    Reverse charge is basically a simplification. The idea with VAT is that it should be charged where the supply is made. That’s a complex question, but for businesses is almost always resolved by saying that services are provided to a business where the customer is.

    So if Uber is in the Netherlands, and a business customer is in the UK, the supply is made in the UK.

    Reverse charge avoids a company having to register in every jurisdiction in which it has business customers by making the customer account for the VAT – it’s much easier for a UK business to account for UK VAT than it is for a Dutch business to do so.

    The trick is deciding what a business customer is.

    The UK says that if you’re demonstrably in business, you’re a business customer. Many Continental jurisdictions say that you’re only in business (for VAT purposes) if you’re VAT registered. The latter approach gets round this problem altogether: if that rule applied, unregistered Uber drivers couldn’t be reverse charged – Uber would have to charge them Dutch VAT, or possibly UK VAT if it were an electronically-provided service (which seems quite likely in this case).

    Except of course it’s not just a UK issue, it’s a Dutch one too, as it’s a Dutch company that’s refraining from charging VAT and so the Dutch rules would apply in the first instance.

    It’s all a bit complex, really – as VAT always is.

    But what I can say is that if you change the rules to catch Uber, you’re going to cause a whole lot of grief to other small businesses… VAT MOSS all over again 🙁

  7. Noel, I live in Hong Kong too and for those who don’t I would say that the contrast with London is interesting. In London, Uber offers the chance for a ride of equal or even better quality for a third of the price, whereas in Hong Kong it offers the chance of a significantly more pleasant ride for a bit more money. Taxis in HK only take cash, which suits the ‘gentlemen’ who own the cab license who are the sort that prefer ‘cash businesses’ shall we say. The poor buggers driving barely scrape a living, no January playing golf in Florida for these guys, but the plans are the same – the supernormal profits earned by black cabs and the rents due to the Triads are being protected by politicians at the expense of the consumer.

  8. Pellinor,
    As you seem to know a bit about this stuff, can you confirm that the article is correct to imply that if Uber were registered in the UK, as opposed to in the Netherlands, it would indeed have to pay that £40m in VAT?

  9. No. Consumers would have to be charged that VAT, which Uber would collect and give to the government.

  10. Tim,
    Sure, incidence and all that. But my question remains unanswered: is Uber able to charge lower fares than rival apps purely because it is headquartered in the Netherlands?

    A quick trawl through the Gett website (a rival company mentioned in the Reuters article) suggests that on a £108.40 fare, £100 would go to the driver, £7 fee to Gett, and £1.40 to the VAT man. As per other taxi companies, they’re only charging VAT on the booking service fee, not on the entire fare. So far, as expected.

    The wrinkle is that Uber isn’t collecting that £1.40 VAT either, by dint of being registered in NL. It seems odd that the rules favour foreign-registered companies over domestic ones.

  11. One thing HK cabs have in common with the London taxis is that they don’t like crossing the river after dark.

  12. Andrew, that is I think correct.

    It’s a bit of a hole in the VAT rules between EU countries; the system sort of works if the recipient of the service is either VAT registered or is not in business, but because the drivers are in business but not VAT registered they slip through the net.

    It’s more an issue for the UK because we have the highest VAT registration threshold. Lots of countries set their threshold so that you can’t really make a living from an unregistered business, particularly if you’ve got significant business expenses, so the “in business but not registered” group is not significant. But our threshold is £83,000 (that may be out of date) so there are a lot of unregistered viable one-man businesses.

  13. But the claim that Uber uses this to undercut traditional taxis is bollocks, because the traditional taxi is also not VAT registered, just like the Uber driver.

  14. Uber was last night accused of exploiting a loophole to avoid paying millions in tax that helps it undercut rivals.

    As a customer, why should I care? Am I getting a good service, a better one than any seen in the previous two decades before Uber showed up? Yes. Then who fucking cares?

  15. Oh, and any sympathy I have for Uber evapourated when I read their CEO had quit some US advisory panel over Trump’s withdrawal from the Paris Agreement. So we have a CEO presiding over a company that vested interests are looking to close down and make consumers poorer siding with vested interests looking to make consumers poorer. Fuck him.

  16. Andrew M,

    If Uber were operating in the UK, then as the supplier and the customer would both be in the UK then UK VAT would definitely apply, and the cross-border rules would be irrelevant.

    Assuming that Uber charges £220m in fees, then either the £40m would be passed on to drivers/customers as a price rise, or else Uber would take a £33m hit if prices stay the same (it would be £167m net fees, plus £33m VAT to mean the drivers pay £200m in total). Or somewhere in between, if only part is passed on.

  17. I’m in a Hong Kong Uber right now. Decent car, sensible driver, all good. I do sympathise with HK cabbies though*, it’s a terrible corrupt system designed to fleece passengers and exploit drivers.

    *my sympathy often fades when actually in a cab

  18. HK taxis piss me off with the different color ones for different places and if I understand correctly even the red ones sometimes can only be on the island or Kowloon or something. It’s confusing when you’re hammered in wanchai at 1am. Never used Uber there.

  19. Consumers would have to be charged that VAT, which Uber would collect and give to the government.

    Yes. The Guardian, Joyless Moan et all are desperately lobbying for a 20% increase in the price people pay for taxis.

    I find it mystifying that the Left, which has spent thirty years smearing London cabbies as fat white cockney racists has suddenly turned 180 degrees. Presumably they are still fat white cockney racists?

  20. Rob, Joyless Moan’s principles change abruptly when he smells money and can pose as an unctuous shit

  21. @DJ
    I meant they don’t like going from the mainland to the island after business hours.

  22. Any taxi can compete by reducing fares. Where fares are regulated, they are a CEILING not a floor. Any taxi is completely at liberty to charge whatever the hell they like up to this ceiling. I’ve lived in some towns where taxis advertise a cheap flat-rate back-to-town fare, where otherwise they’d be going back to town with no income at all.

  23. Mr Womby, I know, was just taking the piss. I’ve found the same going the other way with the red ones refusing to take me from wanchai or LKF back to Kowloon. I imagine going to the NTs would be an even bigger pain in the arse.

    I don’t live in HK as you can probably guess, but go there reasonably often.

    I think on the island they even have different queues for taxis willing to go tht way or not, right?

  24. and this is why the cost of living in the uk is so high. Theres always some joyless cunt wanting to tax/ service charge you to death.

  25. @DJ
    I’m not a regular visitor so not too clued up on HK taxi protocol. I know last time we were there Mrs W tripped and fell in Nathan Road, bruising herself. She didn’t feel up to negotiating the MTR so we tried to get a cab back to Quarry Bay, but without success.

  26. So, red taxis in HK are supposed to take you anywhere you want to go, but if it involves a toll road, they can charge you the return tolls to get back to where you hailed them.

    Problem is obviously that if they bring you from Nathan Road to Quarry Bay, you can pay them the return toll ($10 or something), but they still won’t find a passenger in Quarry Bay who wants to go to TST.

    If you were so inclined, you could take a photo/video of the licence plate and complain to the Transport Department, who do take complaints seriously, but can you really be bothered?

    What you should have done, if you spoke Cantonese or Mandarin, is to ask them to take you to the cross-harbour taxi stand in TST. That’s where taxis who want to go to HK wait, and they only charge you the toll in one direction (since they already got double from the previous punter).

  27. Manila taxis are the worst. They all have painted on the side “Anywhere in Luzon” but will refuse to take you somewhere in the city they don’t fancy. Two bad examples I personally experienced:

    1) when wife was in labour a taxi refusing to take us to a hospital out his way.

    2) when the ex’s dad was dying from a stroke a taxi pulled up and when he saw us trying to carry the poor bastard into his car just sped off with the door open.

    They’re the worst examples but it’s everyday refusal to take people places as well tht makes me give zero fucks when they complain about Uber etc.

  28. Could not the locals in Sussex not be persuaded with a few gratis ciders to perform a Wickerman sacrifice on the preening cvnt Soapy Joe by nailing him to his fvcking windmill and torching the whole thing?

  29. “Could not the locals in Sussex not be persuaded with a few gratis ciders to perform a Wickerman sacrifice on the preening cvnt Soapy Joe by nailing him to his fvcking windmill and torching the whole thing?” -can’t imagine it burning for long with that wet drip attached. but prepared to be proved wrong.

  30. A few gratis ciders?

    Cider?

    This is Sussex, not Somerset.

    Proper beer, thank you very much.

  31. “Uber was last night accused of exploiting a loophole to avoid paying millions in tax that helps it undercut rivals.
    It was claimed that HMRC has missed out on about £40million in VAT from the controversial taxi app thanks to the legal but highly controversial tactic.”

    So, the gist of his article is that Uber is *following the law* and HMRC is not missing out on anything – because Uber is following the law and doesn’t owe them the money anyway. Otherwise HMRC is missing out on ALL THE MONEY IN THE COUNTRY.

    And he’s lamenting that Uber is following the law so their tax bill is lower than if the law is different instead of lamenting that the people who made the law didn’t write it like he wanted them to?

    I don’t know – maybe he’s learned from the Corbyn fiasco to not burn the bridges *in front* of his path to a Lordship or something.

  32. Ugh, should have read the article first instead of just the quoted section. Despite sounding exactly like him this isn’t an RM joint.

  33. Ah, but the cunts at the Daily Mail can’t sell papers when they have headlines like this:

    Uber follows law. Doesn’t pay tax that isn’t due.

    And it’s worth pointing out to all the howlers that this is what you get for being in your beloved EU.

  34. Noel,

    Its not just HK where taxi licences were an investment themselves. New York Medallions used to trade at $1m+ but now some of those investors are going broke because the market collapsed when Uber came along:

    http://www.npr.org/sections/money/2015/07/31/428157211/episode-643-the-taxi-king

    From the transcript: ”

    You know, Stacey, as I was listening to Gene Freidman’s woes, I just kept flashing back to the financial crisis, to the housing bubble collapse – because he talked about the same sort of things. You know, it’s all about the value of the medallions. Nobody knows what the value of the medallions are because remember, he used to have a billion dollars’ worth of medallions, when they sold for a million each. But now nobody wants to buy; nobody wants to sell. The market for medallions has shut down. And the few that have changed hands have done so for something like $800,000, which is way below what Freidman paid for them.”

    http://www.npr.org/templates/transcript/transcript.php?storyId=428157211

    To be fair the guy was quite phlegmatic about it as a company had bought the medallions and that is the entities that are going bust.

  35. Its not Uber avoiding VAT. Its the customer.
    HMRC may be annoyed at Uber, parliament may want to change tax laws. In the meantime the consumer gets a cheap deal – what is the downside?

  36. Melbourne is going to be compensating license holders because their license values have been destroyed by the ‘legalisation’ of Uber.

    That should be an abomination but, in fairness, the government sold these licenses and then changed the rules… so there’s some legitimacy to the idea of compensation.

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