UK tax authorities pursue Uber in widening VAT dispute

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The UK tax authority is pursuing Uber, the ride-hailing app, in a widening dispute over VAT.

The company said that HM Revenue & Customs had “disputed the amount and manner” it had applied VAT to its UK mobility business.

As a result, the tax authority assessed that the company owed an additional £386mn ($491mn) in taxes, Uber said in its half-year results published on Tuesday.

Uber plans to appeal against the decision at the UK tax tribunal.

However, last month it paid the £386mn to HMRC, which will be refunded should it win its appeal.

The development comes after Uber agreed a settlement with HMRC last year that saw it pay £615mn to the tax office after it lost a case at the UK Supreme Court in 2021 over the VAT treatment of its drivers.

Uber had argued that it was exempt from VAT because its drivers were self-employed contractors. However, the Supreme Court ruled that its drivers should be considered workers.

The latest tax dispute centres around changes that the San Francisco-based company has made to its business model since March 2022 following the Supreme Court ruling.

HMRC has challenged Uber’s use of rules designed to simplify VAT for tour operators, called the Tour Operators Margin Scheme. These rules are also used by minicabs and other ride-hailing apps.

Uber is arguing that all private-hire operators in the UK are eligible to pay VAT on the profit margin of a trip rather than its full cost, as HMRC contends, according to people familiar with the situation.

Uber said: “Urgent clarity is needed for the whole industry in order to protect drivers and passengers.”

HMRC said: “We have a strong record on large business tax compliance and actively challenge them on tax due.”

Dan Neidle, former head of tax at law firm Clifford Chance and founder of think-tank Tax Policy Associates, said it was “hard to say” which party would ultimately win the dispute.

He added that the dispute could take a decade to resolve, with appeals and counter appeals likely.

No date for a court hearing has been announced.

Last week Uber won a case at the UK high court over how VAT is applied by private cab operators and taxi-hailing firms in the UK outside London.

The case had been brought to level the playing field with competitors following Uber’s Supreme Court loss in 2021.