Uber has a big problem in London. Actually, three.
The first is that it got only a two-month license extension from Transport for London, the local taxi regulator.
The second is that the employment status of its UK drivers remains unresolved. A series of court rulings has deemed them “workers,” a third category of employment that exists in the UK with rights between those of an independent contractor and a regular employee. The latest decision finding UK drivers to be workers—who qualify for rights like minimum wage and paid time off—came from the Court of Appeal in December 2018. Uber has appealed to the UK Supreme Court.
The third problem is that Uber could end up receiving a very nasty tax bill. In the full accounts for Uber London Limited filed last week (first spotted by Izabella Kaminska at FT Alphaville), Uber said in a note on “contingent liabilities” that it “is involved in an ongoing dialog with HMRC, which is seeking to classify the Uber Group as a transportation provider,” a change that would “result in a VAT (20%) on Gross Bookings or on the service fee that the Company charges Drivers, both retroactively and prospectively.” HMRC, short for Her Majesty’s Revenue and Customs, is the UK department that handles most taxes, some benefits, and enforces the minimum wage.
The tax thing is a Big Deal. In many countries outside the US, Uber has kept rides cheap in part by skirting local taxes on goods and services. Uber defines itself as a technology platform that facilitates exchanges between consumers and suppliers, rather than a direct provider of goods and services. That shifts responsibility for paying VAT to the suppliers (in Uber’s case, the drivers) who generate much less revenue and often don’t meet the threshold for having to pay VAT at all. One estimate puts Uber’s unpaid VAT bill at over £1 billion.
“We can’t comment on any discussions with HMRC but we will always fulfil the tax obligations in any country in which we operate,” an Uber spokeswoman said in an email.
Uber’s tax situation, in other words, is directly linked to the employment status of its drivers. If Uber drivers are found, definitively, to be workers and not contractors, then Uber would be an employer and its revenues likely subject to VAT. The company said as much in its IPO filing: “Losing the [employment] case may lead the UK tax regulator (HMRC) to classify us as a transportation provider, requiring us to pay VAT (20%) on Gross Bookings both retroactively and prospectively.”
Not to mention all the other headaches that classifying drivers as something other than contractors would bring.