Uber is avoiding about £40 million tax a year by exploiting a loophole in VAT rules, it emerged yesterday.
The loophole allows Uber to shift responsibility for VAT payments to its 40,000 drivers, allowing the company to keep its full share of the estimated £200 million fees it generates annually from charging them to use its taxi-hailing app.
The revelation is further evidence that global technology companies are treating national tax rules with impunity. It also makes a mockery of government pledges to stop internet companies avoiding tax.
Margaret Hodge, the former chairwoman of the Public Accounts Committee, said it was “yet another example of how large companies find loopholes and use the law for a purpose for which it was never intended”.
“There is a failure to pay tax that should be due,” she said. “That reduces the money available for public services and is unfair on Uber’s competitors.”
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Uber confirmed that it did not pay VAT on booking fees after an investigation by Reuters found that the company had exploited a European Union rule on business-to-business sales across borders. The same rule has been used by Google and Facebook to avoid tax.
Uber uses the rule to treat its UK drivers as small businesses that are responsible for making VAT payments themselves. The rule lets a business sell goods or services to another business across an EU border without paying VAT, which is usually collected in the importing country. Uber uses the rule to bill its UK drivers from its Dutch subsidiary.
In practice, Uber’s drivers will not pay any VAT because they are unlikely to exceed an £85,000 sales threshold that would require them to register to pay the tax in the UK. This means that HM Revenue & Customs will receive little if any VAT from sales generated by Uber in the UK.
Uber is by far the most popular taxi-hailing app in Britain, which accounts for about a third of the company’s business in Europe. Uber’s charges are often lower than its closest UK competitors, Gett and Mytaxi. However, Gett and Mytaxi said that they paid VAT on booking fees because they billed their drivers fees from within the UK.
Uber says that it has more than 40,000 drivers in Britain who each earn on average £560 a week from fares. Uber takes a cut of 20 to 25 per cent of these fares, which suggests that the company makes £200 million a year in fees. VAT is charged at 20 per cent.
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A spokesman for Uber said: “Uber respects the local tax regulations in each country in which we operate. Drivers who use our app provide transportation services to passengers and are therefore liable to pay VAT in relation to their activities, including the service fee they pay to Uber, if they meet the thresholds set by the government. This threshold varies from country to country and in the UK it is currently £85,000. The same rules apply to any international service provider with customers in the EU.”
HMRC declined to comment on Uber specifically but a spokesman said: “Everyone has to pay the tax due under the law and we make sure they do.”
Uber has become embroiled in several scandals since the start of the year. Eric Holder, the former US attorney general, is examining allegations made by staff of sexual harassment as part of an investigation into the company’s culture.