finance

Is Uber too big to fail?


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Before the crisis, Uber’s UK operations were facing an existential reckoning. If the ride-hailing app were to lose its final appeal against the Employment Tribunal decision that classified its drivers as workers rather than contractors, not only would its operational costs be heightened to a point it might not be viable to operate in the UK, it risked a retrospective VAT bill from HMRC amounting to as much as £1.5bn.

While there is still no news of the final employment appeal’s timing, it does seem that, despite the best efforts of the UK justice system to remain operational during the Covid-19 crisis, a number of appeals are being postponed.

This triaging of cases has now hit Uber’s appeal against the High Court’s decision that HMRC could tell the Good Law Project (a non-profit that seeks to support progressive law change in a way that reduces public distrust of the establishment, fronted by Jolyon Maugham QC) whether it had assessed Uber for its legacy tax exposures. This was due to occur this week but has now been postponed.

This case is important because its determination may influence the Good Law Project’s (GLP) judicial review against HMRC regarding why the tax authority had not filed protective assessments on Uber when it realised there may be unpaid VAT exposures at hand. 

The tax authority has a duty to use protective assessments to freeze the point beyond which past tax liabilities can be clawed back by HMRC. This period lasts until it is determined whether the party being assessed was liable for taxes all along. Without such assessments a statute of limitation may otherwise apply, restricting HMRC’s capacity to claw back taxes to six years only.

The now postponed appeal is fundamentally a tax privacy case. When the GLP initiated its HMRC judicial review on May 29 2019, Uber — as an interested party — challenged how much of the information held by HMRC could be publicly disclosed. In response, HMRC made an application to ensure all details would be kept private between the parties in the case. But Uber took the matter even further by applying to the high court to restrain HMRC from disclosing anything at all, even to the GLP. After losing that case in November, Uber launched its appeal.

An Uber spokeswoman told FT Alphaville it couldn’t comment on any discussions, but that it would always fulfil their tax obligations in any country in which it operates.

The postponement nonetheless is telling for two reasons. First in terms of the constraints facing the Justice System because of the pandemic, and second in terms of what the priorities of the judicial system are at the moment.

Too big an indirect employer to fail?

While the UK government has moved to support self-employed workers with grants reflecting up to 80 per cent of their average monthly trading profit over the past three years, limited to £2,500, the move was not immediate. This is not surprising given the moral hazard associated with offering support to those whose indirect employers have thus far operated business models offering minimal worker benefits while simultaneously exercising their right to maximum tax efficiency.

Nonetheless, it is also the case that the cost of overall taxpayer support will be exacerbated if indirect employers of this sort are forced to go bust. It’s in no one’s interests that 60,000 drivers can’t get back to work.

On that basis, now may not be the best time to expose legacy VAT tax bills and/or related negotiations that could negatively impact Uber’s stock price even further. This is especially in light of the broader VAT deferment being applied to business across the board.

For as long as the negotiations are shrouded in secrecy the government also retains some leverage in terms of the conditionality and nature of Uber’s post-crisis operations.

As noted earlier on FT Alphaville, a gaggle of high-growth tech companies have implored the UK chancellor, Rishi Sunak, to offer help to those who have invested in technology and growth rather than short-term profitability. As a US-based business, Uber’s first port-of-call for support is unlikely to be the UK. But any assistance it can receive in terms of forbearance on legacy tax liabilities is likely to prove a negotiating point in terms of its future UK-specific conduct. At least from the UK government’s perspective.

In a big first for the company, Uber in-acted a Covid-19 financial assistance plan on March 18 to cover drivers’ loss of earnings for up to 14 days in the event of sickness or self-isolation.

As an Uber spokeswoman told FT Alphaville:

In these difficult times, we believe it is the right thing to do to support any driver who uses the Uber app. Active drivers diagnosed with COVID-19 or asked to self-isolate by a public health authority will receive financial assistance for up to 14 days. This is in addition to free AXA insurance protection, which covers sickness, injury, maternity and paternity payments for all drivers in the UK.

When it comes to triaging which zero-profit unicorns should be entitled to government support — whether through grants, equity purchases or loans — now is the time some deals are going to be done. Uber is clearly already moving in the right direction.

And, in that context, a small delay to the determination of Uber’s tax privacy appeal certainly doesn’t hurt the government.

Related links:
Uber’s UK VAT liability confirmed – FT Alphaville 


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