SEFTON METROPOLITAN BOROUGH COUNCIL VAT AND PRIVATE HIRE
UBER BRITANNIA LTD AND
Article by Jonathan Main VAT and Indirect Taxes Partner MHA Moore and Smalley
Jonathan Main is a VAT and indirect taxes partner at MHA and leads the practice across the North of England. He has a particular interest in the field of transport and has closely followed the develop- ments regarding VAT and the private hire sector.
The future VAT treatment of private hire revenue was brought into sharp relief by the recent judgment in Uber Britannia Limited v Sefton Borough Council [2023] EWHC 1975 (KB)
This article aims to give private hire operators the insight they need now in order to prepare for tomorrow’s challenges.
STEADY AS SHE GOES…
There has been a lot of press about the VAT implications of the Uber and Sefton Council High Court decision published in late July.
Private hire operators (PHOs) need to know how this might affect their livelihoods.
It is unprecedented for a case that has nothing to do with VAT to cause this much uncertainty on the future VAT profile of this market.
For now at least, the key takeaway for readers of this article is, steady as she goes.
WHAT HAPPENS NOW?
The most efficient VAT outcome is for a PHO to act as an agent on behalf of the driver for private hire journeys.
• The PHO will charge a fee to the driver for the introduction of business.
• The self-employed driver will accept the journey at their discretion.
• The driver will agree a fare with the passenger.
• The driver will retain the fare and be liable for any taxes, including VAT.
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The PHO’s VAT liability will be limited to fees charged to drivers and fares collected from drivers employed by the PHO. The agency model is supported by published HMRC guidance. There have been several VAT cases over the years on whether particular arrangements were agency or principal, but none of these have disturbed HMRC guidance that a PHO can operate as a principal for account business and an agent in other cases.
THE LEGAL CHALLENGES
Uber succeeded in its argument that Sefton MBC incorrectly licensed PHOs in its borough and that a PHO should in fact be treated as a principal in the pro- vision of the travel service provided to the passenger.
Uber is using Sefton MBC as a test case for other local councils in England and Wales. Uber lost an earlier decision involving Transport for London (TfL), which dealt with separate but similar licensing regulations applying to PHOs licensed by TfL.
In the TfL case, Uber wished to be treated as an agent. In losing this case, Uber is now a principal in the provision of private hire journeys in London. To level the playing field across most of England and all of Wales (there are different licensing regulations in Scotland, Northern Ireland and Plymouth), Uber is seeking the same outcome already suffered in London, namely that a PHO operates as a principal in the provision of a travel service to a passenger.
Subject to a successful appeal in the Sefton MBC decision, Uber has succeeded in its endeavours, at least to the extent of licensing.
WHERE IS THE VAT ISSUE?
The VAT issue is lurking in the interaction between HMRC guidance and licensing regulations.
To achieve the preferred VAT outcome for private journeys, a PHO will act as an agent, introducing business to a driver for a fee. The PHO charges VAT on fees charged to the driver. The driver is liable for any VAT but only if they breach the annual VAT threshold of £85,000.
OCTOBER 2023 PHTM
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