Uber and App Drivers & Couriers Union (ADCU) have been successful in a landmark ruling that will change the landscape of the private hire vehicle (PHV) sector.

In 2021, the ADCU defeated Uber in a similar action in the High Court under separate legislation covering only London. As a result, Uber has been forced to change its business model contract directly with passengers rather than misclassifying itself as an agent. This has helped confirm driver status as workers with statutory protections. And since Uber becomes the principal rather than the agent, it is now liable for VAT.

By incorrectly designating their drivers as principal for the last decade, no VAT has been paid on Uber services since drivers do not earn enough to meet the VAT threshold of £85,000. This changed on 31 October 2022 when Uber announced that it had reached a settlement with HMRC for back VAT payment of £615 million in unpaid tax.

In order to level the competitive playing field nationally, Uber sought a declaration at the High Court to the one imposed on it for London to cover the rest of England and Wales. This was opposed by the Veezu Group, Delta Merseyside and a coalition of operators they claim to represent.

Large app-based operators such as Uber, Bolt and FreeNow have already made these business model changes across England and Wales, as well as London. This judgment ensures that all other operators must now follow the same regulations.

Some PHV firms outside of London are concerned that they could now be forced to raise their prices by up to a fifth as the ruling will likely mean paying VAT on journeys. Ride-hailing firms will be hoping that the VAT owed will not amount to 20%, with a more ‘marginal’ rate of tax applied.

Mrs Justice Justice Foster DBE agreed that the current model of practice upheld by Councils for 47 years must now change. Private hire operators must now accept the contractual responsibility for the transport of their passengers and pay taxes due.

The ruling

In her ruling Mrs. Justice Foster DBE provided the following legal analysis on the case officially listed as Uber Britannia Limited v Sefton Metropolitan Borough Council & ORS:

On worker rights:

‘There is considerable strength in the view that a properly regulated and remunerated pool of drivers is a benefit to public safety.

‘It is clear also from The Maxwell Stamp Report that the agency driver model was deprecated by the Committee. ADCU advanced a series of compelling arguments to the effect that drivers’ working conditions may well improve as a result since they would at least in some circumstances, be recognised as workers with working time, sick pay and minimum wage rights.

‘ADCU did not accept that since the old style agency model was the backdrop to the 1976 Act, it determined its interpretation: they point to the fact that Maxwell Stuart suggested reform. I agree.’

On public safety:

‘I am not persuaded that the issue of public safety is a weak purpose and of little use for the construing of the 1976 Act. Veezu and Delta suggested the licensing mechanism and the requirement for insurance were adequate protections, and there was no drive to construe the provisions as UBL argued.

‘Such measures in my view are, as noted by ADCU, ex post facto remedies and are no substitute: one may not insure against criminal acts.

‘Furthermore such provision does nothing to raise standards; it is not precautionary.

‘Thus, without such a direct responsibility placed upon operators, there is less likelihood that drivers will be trained or their performance managed: it conduces to better standards and public safety which serves the purpose of the 1976, as the 1998 Act. These were the submissions of ADCU; I agree.’

On Uber's bid to restrict the declaration:

‘There is no reason on the wording to limit this to the first sub-contractual situation only, as suggested by UBL: the contract of hire should always be with the operator who has interacted with the hirer/passenger, since he can control the booking, the driver under the Act is, as submitted by ADCU, subordinate to the operator, working (unlike the hackney cab who plies for hire), entirely through the operator.’

On rejection of Sefton, Veezu and Delta's argument that VAT and worker rights liability would damage the trade:

‘The VAT consequences for those who will wish to change their operating model are in my judgement irrelevant.

‘They do not condition the reading of the provisions, it could never be said that a change in the taxation position is an absurd consequence the draughtsman could never have contemplated would result and did not intend.

‘It, together with certain postulated economic consequences do not have relevance to the exercise of statutory construction before the Court.

‘Nor indeed, as was canvassed in argument, is it wholly impossible that any consequent change by way of increase to fares because of an element of taxation would necessarily be passed on to the customer. ‘

James Farrar, ADCU General Secretary said:

‘This case has arisen because, despite the clear meaning of the letter and spirit of the law, not a single licensing authority in England has enforced these regulations in the 47 years of the history of this legislation. These regulations are necessary for the safety of the travelling public, to prevent exploitation of workers and to curb tax evasion. It should not be the responsibility of unions to ensure the industry is regulated properly but we will continue to do whatever it takes to clean up the industry and make it fit for workers and the travelling public. We will now redouble our efforts to hold local councils to account for their negligence and to challenge exploitative minicab operators that have blighted the industry for decades. The ADCU is committed to cleaning up the minicab trade for once and for all.’

Azeem Hanif, ADCU East Midlands Chair said:

‘This has been a terrible, 47 year long miscarriage of justice. The purpose of the legislation is to protect workers and passengers yet local councils and operators subverted the law with tragic consequences. Part of the problem is a corrupt culture of cronyism between regional operators, council licensing committee and licensing authority staff to the exclusion of licensed drivers. Starting from Monday I will be asking tough questions of the councils in my region - including Nottingham City Council, Leicester City Council and Northampton City council - as to why this was allowed to happen. Driver licensees and the travelling public deserve a full independent inquiry into what I can only describe as a public scandal.’”

Read the Judgement