𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Rachel Reeves has been left red-faced after Uber made significant changes to its relationship with drivers to avoid her “taxi tax”. In November’s budget, the Chancellor closed a VAT loophole in order to force private hire cabs such as Uber and Bolt to pay 20% tax on fares.

Currently, they pay 20% on the commission they earn from a journey, which is a fraction of the overall fare. However ahead of the new law coming into effect on Friday, Uber has changed the relationship between the company and drivers. Under a new contract, the company will now shift VAT responsibility to its drivers by effectively acting as a booking agent.

Under the so-called “agency model”, the tax responsibility will lie with drivers who will contract directly with passengers.

The move is unlikely to mean that Uber drivers will now pay VAT, with only those earning in excess of £90,000 a year required to become VAT registered.

The tax was expected to raise £700million a year but as a result of the move, the Treasury is expected to miss out on millions of pounds of taxable revenue, in a blow to Reeves’ attempts to increase tax receipts.

VAT will continue to be charged on Uber’s commission, which is typically around 25%.

The new contract will not apply to drivers in London, where Transport for London (TfL) rules prevent the agency method from being used in the capital. As such the entire fare for London journeys will now pay 20% VAT.

However, fares outside of the capital are believed to account for roughly half of Uber’s £5.2billion in UK revenue last year, meaning a sizeable chunk of the company’s revenue will avoid VAT liability.

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.”

The Daily Express has approached Uber for comment.

Uber previously ran an agency model nationwide but dropped it in 2021 after a court ruled the structure was unlawful in London.

That position changed this summer, when the Supreme Court found that minicab firms operating outside the capital are permitted to use the agency model.