A Landmark Verdict with Tax Implications for Private Hire OR a Recognition of how PHV Operators Already Operate, with A ‘Potential’ Threat of VAT.

What:

The Judgement came in just as we went to press, although the result is a win for Uber, the actual ramifications are yet to be fully understood.  According to the judge:

 “I have come to the clear conclusion that Uber’s suggested construction of the 1976 Act is correct. Accordingly, the question posed is to be answered “yes “.

But what does this mean to our trade, there are (and will be) some big headlines and some strong statements about employment law and VAT, usually by those with an interest in the result, on both sides of the case including many legal people ‘outside of our trade’, without a ‘boots on the ground viewpoint’.  However, remember there were big headlines after the Uber versus TFL Case in London and for many operators not a great deal has changed.

Who:

This case was brought to the courts by Uber (UBL), After the London-based Uber v TFL (and others) case whereby the Judge recognised the Passenger as a Principal. Although in London Uber in effect lost the case, they decided the in the interests of ‘fairness’ they would ensure that the rest of the country share their problems and chose Sefton Metropolitan Council to pick a fight with.

It’s important to remember that in many ways Sefton was caught in the middle as jumping into the fight as ‘intervenors’ was The App Drivers Union, BOLT, Veezu and DELTA (Merseyside) who were also supported and by many other operators.

The Crux of the Case:

Remember at the heart of both cases was the contentious issue of whether Uber was to be recognised as a private hire operator, maintaining a contract between operator and passenger from point of booking, to end of trip. UBL, like many other gig economy platforms, has consistently maintained that they were merely a booking agent, and therefore had no contract at all with the passenger. was suggested in both the Uber London case, and the Uber Sefton case, the judge in both cases stating clearly that “VAT is not relevant to the matter at hand”.

The ADCU who also were noted in the case as giving the workers perspective, also saw it as a victory, confirming Private hire operators must now accept the contractual responsibility for the transport of their passengers.

The Verdict and its Implications:

After extensive examination, the judge unequivocally sided with Uber Britannia Limited, affirming their suggested construction of the 1976 Act as correct. This verdict means that the operator is recognised as having a contract with the passenger. So, for many operators not a great deal has changed.

So, What About VAT

Additionally, the judge’s ruling explicitly stated that the VAT consequences of changing the operating model were irrelevant to the case. This meant that the court’s decision did not hinge on potential changes to the VAT obligations of ride-sharing platforms. This legal victory for Uber emphasised that the case was primarily concerned with whether or not Uber and others, are indeed private hire operators, not tax implications. However, The Govt did have something to say about this beforehand:

In a response to a parliamentary question, the then minister, Lucy Frazer confirmed that HMRC are monitoring the Sefton case. Which means that even though they didn’t, HMRC now have us in their sights.

Prior to the case, some ride-sharing platforms, including Uber, Bolt, and Freenow, charged VAT only on their share of the fare, rather than the entire fare. This practice was based on the interpretation that VAT should only apply to the service fee retained by the platform, not the portion paid to the drivers as their commission. For Private Hire Operators there was a broader interpretation.

“Our advice to clients specifically regarding the tax situation after the London ruling was that only HMRC in an individual case or national Government legislation can change the VAT environment, not regulators. So, for the time being carry on with your existing VAT model, (or if you don’t have one call us!)

I’m not saying it will not be under scrutiny in the future, but even after The Sefton case do not rush to change anything. A tech companies ride-hailing platform is not the traditional PH model. Let’s see what our Government has in store for us first”.

Private Hire Operators have always acknowledged at least a ‘duty of care’ of the passenger, in fact it is written into section 56 of the LGMPA1976, so the move to principal isn’t such a big jump. In fact, it could be considered that the word “principal” is being used to try to introduce VAT implications, maybe the word should be “primary” or “initial” contract to avoid confusion.

Conclusion

The Uber vs. Sefton case has implications for the gig economy and the application of VAT to ride-hailing platforms in the UK. However, if there are any VAT implications, that must only come from HMRC and would require a change in primary legislation, not merely a court ruling that confirms that a private hire operator remains contractually obliged to its passengers from beginning to end of entire trip process.

Nor does the ruling extinguish the other two contractual obligations that remain in place throughout the process which include the contract between operator and driver, to attend punctually and fulfil the trip, and between driver and passenger, to attend in a suitably licensed vehicle, and drive safely and efficiently to the destination. This ruling was never about removing those, only about confirming that the first contract exists for all operators, including those who provide app-based booking processes.

The verdict maintains the status quo as set by the TFL case, but we have yet to see what that status quo looks like in practical terms. It could have far-reaching consequences, impacting other gig economy companies operating in the UK. As the ride-hailing industry continues to evolve, the legal and regulatory landscape surrounding the gig economy and VAT will remain an area of close scrutiny for businesses, workers, and policymakers.

This Blog and associated articles and comments on this subject has been produced as a consequence of working with the expertise of Steve Wright MBE and The LPHCA over many months. My thanks to him for his continued industry knowledge and consistent involvement in protecting our industry’s interests. Also, my thanks to David Lawrie of The NPHTA for his invaluable contributions to this Blog.