Uber “wins” multimillion-pound VAT reprieve

This development marks a significant shift in the ongoing VAT battle affecting the ride-hailing industry in the UK.

For years, HMRC has forced companies like Uber to pay VAT on the full cost of each ride instead of just on their commission or “margin,” compelling them to effectively overpay while legal ambiguities persist.

This policy was partly bolstered by a 2022 UK Supreme Court ruling that reclassified Uber’s drivers as employees, thus increasing the company’s tax burden. Both Uber and its European rival, Bolt, have argued that they should only be taxed on the fare portion they retain, applying the logic of the Tour Operators Margin Scheme (TOMS), which calculates VAT on the margin between the purchase and resale prices rather than the entire transaction.

According to reports, the rationale is that, as resellers of a transportation service provided by independent drivers, taxing the full fare constitutes double-counting the actual value.

In March, the UK’s upper tribunal ruled in favour of Bolt by confirming that its services fall within the TOMS framework, a decision that undermined HMRC’s previous stance despite their expressed disappointment and intention to appeal. As a consequence, HMRC has now paused the enforcement of VAT assessments against Uber, assessments which had been issued quarterly and cumulatively amounted to roughly £1.4 billion.

This pause represents more than just a temporary financial reprieve for Uber—it signals potential broader industry implications, as a final ruling that confines VAT to only the margin could lead to significant tax recoveries for ride-hailing firms, while a successful appeal by HMRC could reverse the leniency, reshaping the operational and competitive dynamics in the UK’s gig economy.