Oh Snap

Doubtless, you have heard various right wingers suggesting that we should replace the income tax with a VAT (Value Added Tax), and they have explained that a VAT is basically a national sales tax.

The truth is that while it is similar in overall effect, a VAT is administered in a very different way:  Rather than levying a tax at the time of retail sale, they levy a tax on each amount of value added at each step of the process, so there is a paument when the ore is mined from the ground, then a payment on the value added by refining, and a payment on (in this case) a steel mill making sheet and plate, and so on, and so on, and so on, until you have (in this case) a car.

It is structured that way because there is a real problem with tax evasion in many European countries, and a VAT is almost impossible to evade.

Well, as a result of the decision of the London Employment Tribunal to classify Uber drivers as employees 8 weeks ago, it appears that the serial criminal of the taxicab industry is going to get completely hosed on unpaid and future VAT:

………

But it also has a further – and rather more fundamental – tax problem.

Let me explain. And for clarity I’ll reduce the argument to its essentials:

1. before the Employment Tribunal, Uber contended that it simply acted as a booking agent for drivers. The Tribunal disagreed. It found, applying a normal contractual analysis, that Uber engaged drivers and supplied transportation services to passengers;
2. what does this mean in terms of VAT? Well, for VAT, you start with the normal contractual analysis. But national tax authorities can also go beyond that analysis to discern the underlying “economic and commercial reality of the transactions” (as the case law puts it). I don’t, for the purposes of my argument, need to take that extra step. If the VAT analysis follows the contractual analysis then the following points apply. But the VAT test is wider than the contractual one – and even if Uber’s appeal against the Employment Tribunal decision succeeded it could still have a VAT problem;
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;
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;
5. if you assume that Uber has no material input tax to set against its output tax, that would mean that, of every £100 of fares Uber has collected, it has a liability to pay VAT to HMRC of £16.67. It seems as though Uber racked up about £115m in fares last calendar year. This would mean it had a VAT liability of just under £20m for London for that year. But HMRC can go back four years or, sometimes, more. There is no suggestion in the accounts of the relevant Uber entity – Uber London Limited – that it was aware it had this risk;
………
9. we should watch with care what actions, if any, HMRC take. I should have absolute confidence that HMRC will properly investigate the potential NIC and VAT liabilities of the Uber structure. I don’t.

I'm inclined to agree on item 9.


The psychopaths at Uber seem to have the ability to make regulatory and tax authorities look the other way, which is a pity.