Towards the end of 2017, the European Court of Justice (ECJ) ruled that the taxi firm Uber was not a digital service, as the company had suggested, but was instead a transport company.
This ruling means that the firm must face the same level of regulation as any other company within the transport industry, but more importantly, it means that Uber should also be taxed in a similar manner – including when it comes to VAT.
Tax barrister Jolyon Maugham QC believes that the firm could owe more than £1 billion in VAT. He took the company to the High Court last year after it failed to provide him with a VAT receipt so that he could claim the money back from HM Revenue & Customs (HMRC) as a business expense.
This case exposed the fact that the company wasn’t following the same VAT rules as other taxi firms, which is why the ECJ’s decision could land the firm with a big VAT bill.
In its ruling, the ECJ said that a service whose purpose was “to connect, by means of a smartphone application and for remuneration, non-professional drivers using their own vehicle with persons who wish to make urban journeys” must be classified as “a service in the field of transport” under EU law.
This decision sets a precedent that gives national regulators across the EU, including the UK, powers to introduce stricter employment and tax laws on technology companies that compete in the offering of traditional services, such as deliveries and transport.
In October 2017, MPs queried HMRC over its failings to investigate the way Uber handled VAT.
Meg Hillier, Labour MP and Chair of the Public Accounts Committee (PAC), described the fact that no formal probe had been conducted as “extraordinary”.
She said: “HMRC has been slow to react to new business models. It needs to be much more adept at working out how working practices are changing and the disruptor businesses out there need to be examined.”
The UK’s digital economy has expanded significantly in recent years and more firms than ever are experimenting with technology to see how they can improve and create new services for customers and clients.
However, the rules in regards to the taxation of these new industries and ideas is not quite as clear cut, particularly when it comes to VAT.
If you are looking to launch a new business or innovate an existing one and are concerned about how it might have an impact on the reporting and payment of VAT, please contact us.