Cost of taxi journeys could rise by 20% as Uber wins major high court battle
The cost of a taxi journey could rise by 20% after Uber has won its major VAT case in the high court.
The "test case" was brought to the High Court by Uber against Sefton Metropolitan Borough Council at the end of last year, after the court ruled all London cabs had to pay VAT on each journey.
The ruling was announced on July 28 and means the entire private hire ride industry, not just those in London, could now be forced to add VAT charges to their fares for the first time.
This case revolved around who is in charge of paying VAT on the journeys for private hire vehicles - the taxi company or the driver. In December 2021, Uber drivers were ruled as being "workers" and not self employed, which then switched the VAT obligations from the driver to Uber.
Since most drivers were below the UK VAT registration threshold of £85,000 per year, most Uber rides didn't charge VAT. However as Uber is over that threshold, they had to pay.
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In March 2022, the popular ride-hailing app then started charging 20% VAT on its journeys. In a bid to level the playing field with competitors, Uber took legal action and asked the High Court to rule that all private-hire taxi operators in the UK had the same terms as Uber.
This would mean all of these companies - which is around 16,000 private cab firms - would have to pay 20% VAT on each trip.
The High Court ruled in favour of Uber's argument with Judge Alison Foster saying: "I have come to the clear conclusion that Uber’s suggested construction of the 1976 Act is correct. Accordingly, the question posed is to be answered yes."
In response to the ruling, an Uber spokesperson said: “Today’s judgment resolves a major inconsistency in the way that rules have been applied for private hire operators across England and Wales.
"But whilst it clarifies many key points, there remain questions on VAT and what passengers should pay.”
The ruling does not have an immediate impact on the industry however changes could be introduced in the future which could cause the cost of all tax journeys to be 20% more expensive.
Layla Barke-Jones, a Partner in the Dispute Resolution team at the law firm Aaron & Partners, who acted on behalf of a group of Liverpool-based taxi firms opposing Uber's argument said the High Court's judgement was "disappointing.
She added: “It is important to remember that this case was not about taxi firm's tax liability but the potential for HMRC to require the taxi firm to collect VAT for HMRC.
“VAT is charged to the passengers and passed to the Government. Our stance in this case has been to try to protect the passengers. Given the potential for such large fare increases this now requires urgent Government action to prevent VAT from being charged on private hire fares.”
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