Taxi firms could be forced to up their prices by a fifth as Uber calls for cabbies across the country to pay VAT on their journeys.
A High Court hearing is expected to be handed down this week after the ride-hailing giant sued Sefton Council about VAT terms operating outside of London.
Since the 1970s, private hire journeys have not been eligible for VAT as the driver was treated as the principal for tax purposes, and their earnings fell below the required threshold.
However, a series of rulings have raised question marks over this situation.
Not only did a Supreme Court ruling find that taxi contracts exist between passengers and operators, rather than with drivers, but a 2021 High Court ruling found that London private hire vehicle (PHV) operators must contract directly with passengers to provide the journey.
This meant that Uber, as a VAT-registered firm, must pay VAT on every taxi ride in the capital and make significant business model changes.
Uber told City A.M that it had completed the changes as required by law, but said that it “considers that the PHV regulation in the rest of England, Wales and Northern Ireland is substantially the same as London, so Uber applied these changes across the UK.”
This week’s hearing is a matter of contractual law expanding beyond London, and whether a licensed operator who accepts a booking is required to enter as principal into a contractual obligation with that passenger – meaning they must pay the 20 per cent levy on each journey.
If the court rules in favour of Uber, it could mean that all taxi bookings, for all operators around the country, would see an automatic hike in fares, placing additional regulatory burden on operators of all sizes.
The reaction has been mixed, especially as the cost of living and energy crisis continues to batter household budgets.
“As a driver, it feels like a double-hit. We’ve already had to raise fares as a result of fuel prices, and another hike would be really quite worrying for the communities we service,” Gareth Cadwallader, a taxi driver in Shrewsbury told City A.M.
“A 20 per cent increase would hit the ordinary working people, who use cabs the most, the hardest.”
Conservative MP for Solihull Julian Knight also raised concerns with the Chancellor of the Exchequer earlier this month about the impact on prices.
The government said it currently has no plans to introduce a new charge, but would be “closely monitoring ongoing deliberations by UK courts that may inform the VAT treatment of taxis and PHVs”.
A decision from the court is expected to be handed down on 4 November.