Beleaguered regular readers will recall the Good Law Project’s ongoing High Court dispute with Uber in relation to its tax avoidance. You can see the latest briefing here.
Earlier today, I opened up a new front in that dispute. It’s important, but to understand it, you’ll need a short lesson in VAT.
Pay attention at the back.
Assume you’re registered for VAT. When you sell something for 100 you actually charge your customer 120 including VAT. Tax lawyers call the extra 20 your output tax. Now, assume that to make the thing worth 100 you have to buy stuff worth 70. Your supplier (if also registered for VAT) will also charge you an extra 20% so you’ll end up paying 84. The extra 14 is called your input tax. (Of course, for your supplier that 14 is a tax on its sales and so, for it, it is output tax).
Then, every so often, you pay to HMRC the difference between all of the 20s you’ve charged and all the 14s you’ve paid. On all the value you’ve added – hence “value added tax”.
Because the 14s reduce the amount of money you have to hand over to it, HMRC obliges you to hold good evidence that you’ve paid those 14s. They require you to hold a VAT invoice from your supplier. But they also recognise that sometimes it might be pretty clear that you’ve paid those 14s even though you don’t hold an invoice. And so they retain a discretion to allow a claim for a 14 even without an invoice.
Now, I say I took an Uber and that I am entitled to recover VAT on the cost of that journey. But I don’t have a VAT invoice because Uber won’t give me one. My claim that it must is the subject of the High Court case mentioned above.
But I can ask HMRC to exercise its discretion to allow me to claim the £1.06 of input tax I say I paid to Uber even without a VAT receipt. And earlier today I did. You can read my letter here HMRCInputTaxLetter.
Now, why is that important?
Well, if HMRC decides to allow my claim it will be accepting that I have paid £1.06 input tax to Uber and, implicitly, that it has to collect that £1.06 from Uber. And if that is true for my £1.06 it will also be so for every other £1.06 Uber has ever charged.
And if HMRC decides to refuse my claim I could have the opportunity to appeal against that rejection and contend that, contrary to its decision, I have paid input tax to Uber. And if I won that appeal the tribunal would be deciding that Uber has charged VAT and, implicitly, has to pay that VAT to HMRC. Along with all the other VAT Uber has charged.
And that appeal would be heard before the First-tier Tribunal (Tax Chamber). I would be the Appellant, HMRC would be the Respondent and Uber would be grumbling in the back of the room. And, unlike in the High Court, in the Tax Chamber the loser doesn’t have to pay the winners’ costs.Follow @jolyonmaugham
This is very curious. If registered for VAT, a proper VAT invoice must be issued. If Uber is not issuing a proper VAT invoice, this should be a matter for the courts but rather HMRC for a clear breach of long established rules.
There is actually rather a lot of this going on at the moment. VAT registered I sometimes deal with will send out a non VAT invoice and one has to ask for a VAT invoice, which wastes everybody’s time. Why would one not issue a VAT invoice in the first place? It has to show the supplier, date, VAT number and invoice value. How hard is that?
I suspect that in Uber’s case, the drivers are not VAT registered and the company is, which immediately adds 20% to the bill and private hire taxis are fiercely competitive.
Another group with a similar issue is driving instructors. What appears to happen is that VAT is charged on the business’ margin rather than the whole transaction, especially if each person is a sole trader and not VAT registered.
Therefore, Uber might be able to issue a VAT invoice for the part of the transaction subject to VAT but not the part paid to the driver. Of course, the fly in the ointment here is that the driver must be paid and the whole idea of Uber is that the journey is paid electronically which means that VAT must be paid on the whole.
I begin to wonder just how Uber does its book keeping.
I think i followed all of that thanks to your grand explanation
….Go get ’em!
So, you would be appealing against HMRC’s refusal to exercise its discretion?
Presumably HMRC could advance at least two points – first, that no VAT was chargeable, but then, even if it was, that they decided not to exercise their discretion in your favour.
Could the tax tribunal not just reject your claim on the second point, without determining the first one? What is the test for hte tribunal to overrule HMRC’s decision not to exercise its discretion? Irrationality?
All for the sake of £1.06? De minimis non curat lex.
Thank you Sir 👍
If they won’t allow your £1:06 as a VAT claim, notwithstanding you will challenge such a decision, you/one would presumably be able to claim the amount in some other way – income, corporation tax, etc? Presumably, the objection to your position is that you have not in fact been charged any VAT, because the driver is the provider and is not (presumably) registered for it. Is that right?
Dear Mr Maugham,
I note you say that you are taking legal action against the person you believe supplied you with the service in question. I have also taken into account that the amount you wish to reclaim is less than £2. In the circumstances I am prepared to allow you to treat that amount as your input tax pending resolution of your action in the High Court to obtain a VAT invoice. This should not be taken to imply that I have taken any view on the merits of that case.
Avery Junior-Person (De Minimis Claims Section)
Uber’s argument is our drivers aren’t vat Reg so we ain’t.All London taxi rentals companies pay vat even though there drivers don’t also taxi service providers such as my taxi ect pay vat if this goes against jo and in favour of UBER it opens the door for other companies to do the same therefore less companies paying vat and the social system in this country collapsing it is about fairness!!!!!!!
You have no life if you are suing for £1.06.
About that £1:06. There’s about another £999,999,998.94 pounds hanging on it – all for the benefit of the people of the U.K.
Uber is actually wrong. Addison Lee charges VAT on account fares. But not on cash. Go figure!
How on earth do AL justify charging VAT on accounts but not on cash? I just looked at my AL credit card receipts and don’t see VAT there either.
Well, well. This has all the makings of a case to transcend the old Jaffa Cake/Biscuit wrangle. But hang in there—IMHO Uber should clearly issue a VAT invoice. NB, In addition to the details noted above, a VAT Invoice also has to have a consecutive Invoice Number.
We need people like you to keep a check on these large corporations that fiddle the taxman(and consequently us) keep up the good work
Don’t forget the First Tier Tax Tribunal is moving to Taylor House.
You could double up defending removal proceedings against folks who get screwed over by HMG’s inevitable backtrack on their post-Grenfell “amnesty”
“Assume you’re registered for VAT. When you sell something for 100 you actually charge your customer 120 including VAT. Tax lawyers call the extra 20 your output tax. Now, assume that to make the thing worth 100 you have to buy stuff worth 70. Your supplier (if also registered for VAT) will also charge you an extra 20% so you’ll end up paying 84. The extra 14 is called your input tax.”
So let me see if I get this.
If you weren’t charged the 14 because your supplier wasn’t VAT registered, you’d be handing over 20 to HMRC, not 6.
If the supplier is VAT registered then looking only at the transactions you have mentioned, you hand over 6 and the supplier hands over 14 and HMRC get 20.
And the only reason the person you are charging can’t reclaim the VAT would be because you weren’t VAT registered. Like a member of the public buying something for private use.
So VAT is just a tax on end consumption paid by private citizens and non-VAT businesses.
Is that about right?
HMRC can fairly say they are waiting for the high court case to be decided and, unless you are exceptionally impecunious, you can wait for that decision to receive – or not to receive – your £1.06 – without undergoing significant hardship. If at a later date the HC find for you, they will direct Uber to give you your invoice. If not, they won’t.
As a taxpayer myself, I’d rather you didn’t waste HMRC’s resources on this cunning wheeze to nothing, and focused on the High Court case, which is the appropriate forum.
This is actually quite an appropriate way of dealing with this. The reason being is that this is in effect a leader case for a small amount but i which many millions hang. HMRC should be delighted to take this to a FTT as if Jolyon wins they can approach Uber for the rest of the output they should already have declared plus interest plus penalties for under declaration.