Uber vs. Sefton Council: A Landmark Ruling for VAT in the Private Hire Industry

In a landmark ruling that will undoubtedly reshape the landscape of the private hire vehicle (PHV) sector, Uber and the App Drivers & Couriers Union (ADCU) have successfully defeated Sefton Council and several regional minicab operators.  

The case has far-reaching implications for the industry, touching on issues of worker rights, public safety, and taxation. 

The Lead-Up to the Court Battle 

The legal battle's roots can be traced back to 2021 when the ADCU defeated Uber in the High Court under separate legislation covering only London. As a result, Uber was forced to change its business model, contracting directly with passengers rather than misclassifying itself as an agent. This change confirmed driver status as workers with statutory protections and made Uber liable for VAT. 

The issue at the heart of the case was the contractual relationship in minicab transport. Sefton Council and regional minicab operators sought to challenge a declaration that the contract should be between operators and passengers, not between drivers and passengers. 

Both Sides of the Court Challenge 

Uber and ADCU's Stance 

Uber sought a declaration at the High Court similar to the one imposed on it for London to cover the rest of England and Wales. They argued for a level playing field, ensuring that all operators must follow the same regulations. 

James Farrar, ADCU General Secretary, stated: “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.” 

Opposition by Regional Operators 

The declaration was opposed by the Veezu Group, Delta Merseyside, and a coalition of operators they claim to represent. Some PHV firms outside of London expressed concern that they could be forced to raise their prices by up to a fifth, as the ruling would likely mean paying VAT on journeys. 

Layla Barke-Jones, a Partner in the Dispute Resolution team at the law firm Aaron & Partners, said: “Without a doubt, the case has the potential to cause significantly increased costs that will hit passengers everywhere at the time of a cost of living crisis.” 

The Final Ruling 

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. 

In her ruling, Mrs. Justice Foster DBE provided legal analysis on worker rights, public safety, Uber's bid to restrict the declaration, and rejection of Sefton, Veezu, and Delta's argument that VAT and worker rights liability would damage the trade. 

She stated:  

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. 

Impact on the Taxi and Private Hire Trade 

The ruling ensures that all operators must now follow the same regulations, potentially leading to price increases for some PHV firms. It also raises questions about the appropriate VAT regime for the private hire industry, with calls for zero-rated VAT like other forms of passenger transport. 

An Uber spokesperson said: “Today’s judgment resolves a major inconsistency in the way that rules have been applied for private hire operators across England and Wales. But whilst it clarifies many key points, there remain questions on VAT and what passengers should pay.” 

The Uber vs. Sefton Council ruling is a significant milestone in the private hire industry, setting a precedent that will likely influence future legal battles and industry practices. 

The focus now shifts to the industry's response and the potential legislative changes that may follow in the wake of this landmark decision.