Uber swerves Rachel Reeves’s ‘taxi tax’

Uber is to avoid paying hundreds of millions of pounds under Rachel Reeves’s new “taxi tax” by rewriting drivers’ contracts.The company has issued new terms to drivers outside of London that reduce its liability for VAT – just as the Chancellor closes a previous loophole it used.Ms Reeves adjusted VAT rules in November’s Budget so that minicab companies would have to pay the 20pc tax on entire fares. The change will come into effect on Friday.Currently, they pay it only on the commission paid to the companies – a fraction of the total passenger bill.Uber’s new contract rewrites the legal relationship between the company and its drivers in a way that shifts liability for VAT to drivers.Under what is dubbed the “agency” model, Uber effectively acts as a booking agent and it is drivers who contract directly with passengers, and are therefore liable for VAT.Not only does this reduce Uber’s expected tax bill, it is also likely to deprive the Treasury of significant sums. Individual drivers would not be liable for VAT until they make more than £90,000 in bookings in a year, a level most are unlikely to cross.Ms Reeves’s Budget change, which opponents had dubbed a “taxi tax”, was expected to raise more than £700m a year for the public finances and had led to warnings that fares would rise.When announcing it, Ms Reeves promised that it would “improve competition in our taxi industry” and mean that “everyone pays fairly”.VAT will continue to be charged on Uber’s commission, which has typically been around 25pc of the total fare.The new contract will not apply in London, where the agency model is not allowed under Transport for London rules. As a result, Ms Reeves’s change means the entire fare will now be liable for VAT for journeys in the capital.Uber has warned that fares are likely to rise as a result.However, the changes outside of London are likely to mean the Treasury missing out on hundreds of millions of pounds. Uber’s business outside of the city is believed to account for just under half of its £5.2bn in UK minicab revenue last year.Uber would have been liable for more than £600m in annual VAT payments if it was not allowed to use the “margin scheme” loophole closed by the Chancellor, according to US stock market filings.The new contract also shows that the company can take a commission of up to 49pc on fares.Uber took 20pc when it entered the UK and later changed it to 25pc – but it has since moved to a “dynamic” model in which its cut of rides varies. The new rate will move between 3pc and 49pc, according to the contract.Uber said it was making the changes to keep its fares affordable, adding that the change brought it in line with others operating outside of London. It said its commission on fares was not rising.A Treasury spokesman said: “Ending this use of a niche tax scheme by online minicab firms will both benefit everyday cabbies with a fairer tax system and raise money to help deliver the country’s priorities – cutting the cost of living, cutting waiting lists and cutting debt and borrowing.”Uber previously operated an agency model across the country but abandoned it in 2021 after a judge ruled it was not allowed in London.However, the Supreme Court ruled in the summer that minicab companies operating outside of the capital can deploy the agency model.Before the Budget, Uber was locked in a legal dispute with HMRC over whether the margin scheme loophole closed by the Chancellor was valid, although HMRC had suffered a series of defeats in a parallel case against Uber rival Bolt.Uber paid £1.4bn to HMRC between 2022 and 2024 while it disputed the charges.