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HMRC has demanded Uber pay an extra £386m worth of VAT over its use of the tour operator’s margin scheme
Uber revealed in its half-year results this week that they were in dispute with HMRC about the rate of VAT the company had been applying to its UK business.
HMRC had demanded the extra £386m back in June after it challenged the operator's application of the tour operators margin scheme (TOMS), designed to simplify the tax for tour operators and similar businesses.
Under TOMS, tour operators pay output VAT on their margin instead of their selling price and they pay it in the country in which they are established rather than the destination. For Uber, VAT would only apply on their profits for each journey.
Uber has argued that the scheme applies to their services, and without these rules, customers could end up paying more for journeys as they would be the ones paying VAT.
But HMRC contends that Uber cannot use the scheme, on the basis that the company does not act like a travel agent, because it shapes every aspect of the taxi drivers’ services.
In its half-year results, Uber said: ‘HMRC disputed the amount and manner in which we were applying VAT to our UK mobility business since our business model changed in March 2022, which resulted in an assessment of £386m.
‘In the UK, to dispute the HMRC VAT assessments in tax court, taxpayers are required to pay the assessment up-front to access the court system and, if they are successful in their dispute, the payment is returned to the taxpayer.
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‘In July 2023, we paid the assessment in order to proceed with our dispute in the UK tax court, the payment of which will impact our Q3 2023 operating cash flows and have no impact on our income statement.’
There is no date set yet for the court case, but it is hoped that the issue could be settled soon as other firms could also dispute the assessment.
Back in November 2022, Uber paid £615m to HMRC to settle an investigation into unpaid VAT. The ride-hailing company had previously argued it was exempt from VAT because its drivers did not have enough to meet the UK VAT threshold of £85,000.
This was later revoked following a Supreme Court judgment on the drivers’ employment status, which required them to be considered as workers.
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Peter DoneGroup Managing Director and Founder
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Peninsula Team