This means that private hire and taxi operators across England and Wales would have to charge 20% VAT on taxi fares as the ruling means that when they enter into a contract with their passengers.
The decision follows an Uber case at the Supreme Court in 2021, which ruled that Uber’s drivers were not self-employed, but were instead classed as workers, meaning they were liable to pay VAT on the fares they collected.
Following this ruling, and in a bid to even the playing field, Uber went to court to argue that this approach should cover all minicab operators.
Such an extension would see other private hire operators changing their terms and conditions with passengers, meaning that they would be providing the taxi service as the principle and not as an agent, making them responsible for VAT.
Large app-based operators such as Bolt and FreeNow have already made these business model changes across England and Wales. This judgment would ensure that all other operators would follow the same regulations.
However, some operators are concerned that they could be forced to raise their prices by up to 20% as a result of the ruling.
The case, which began hearing submissions at the end of 2022, was handed down by Judge Alison Foster DBE on Friday.
An Uber spokesperson said: ‘This resolves a major inconsistency in the way that rules have been applied for private hire operators across England and Wales. Whilst it clarifies many key points, there remain questions on VAT and what passengers should pay.’
In 2022, Uber secured a deal with HMRC over an outstanding VAT bill of £615m, over its designation as a transport provider.
By incorrectly designating their drivers as principals for the last decade, no VAT had been paid on Uber services since drivers did not earn enough to meet the VAT threshold of £85,000.
This changed on 31 October 2022 when Uber announced it had reached a settlement with HMRC, which resolved all outstanding HMRC claims related to periods before its model change on 14 March 2022.
The result of this court case has already pushed the private hire industry to call for zero-rated VAT like other forms of passenger transport such as coaches, trains and buses. This has been proposed by a coalition of operators, including Veezu Group and Delta Merseyside.
Layla Barke-Jones, a partner at law firm Aaron & Partners, said: ‘Without a doubt, the case has the potential to cause significantly increased costs that will hit passengers everywhere at the time of a cost of living crisis.
‘Delta had hoped to protect passengers from such an impact and will now call on the government to make private hire tax journeys zero-rated for tax purposes, in line with other forms of transport like buses and trains.’
In the hearing, Veezu argued that the ‘consequence of this application succeeding’ would bring ‘inevitable increases in the cost of running a business as a private hire operator. It submitted that Uber was better placed to absorb them thant its smaller competitors, and could lead to fewer smaller private hire operators in the market.
Judge Alison Foster said: ‘The VAT consequences for those who will wish to change their operating model are in my judgment irrelevant. They do not condition the reading of the provisions, it could never be said that a change in the taxation position is an absurd consequence.
‘It, together with certain postulated economic consequences do not have relevance to the exercise of statutory construction before the Court. Nor indeed, as was canvassed in the argument, is it wholly impossible that any consequent change by way of increase to fares because of an element of taxation would necessarily be passed on to the customer.’
