The UK is eyeing a multibillion-pound tax raid on rides with Uber, accommodation booked through Airbnb and odd jobs undertaken by TaskRabbit as it searches for new ways to plug the gaping hole in the public finances left by the coronavirus pandemic.
In a consultation document published by the Treasury on Thursday, officials cast the spotlight on the “sharing economy”, which has grown rapidly but enables many people to consume services without paying the normal 20 per cent of value added tax due on the products.
When self-employed contractors carry out the service booked on a platform such as Uber, Airbnb or TaskRabbit, they often individually fall below the £85,000 VAT registration threshold. If they were employees and the service was provided by the platform company, consumers would have to pay the tax.
Slapping the sharing economy with VAT has the potential to shore up many billions in tax revenues that the Treasury believes have been lost as these platforms have grown rapidly in size.
The document states the review is part of the government’s objective of “ensuring fair competition and a level playing field for all businesses, whether operating in the sharing economy or as a traditional business, regardless of their size and location”.
It highlighted research that predicted the value of UK transactions on platforms such as Uber, Airbnb and TaskRabbit, which had been £7bn in 2016, was set to surge to £140bn by 2025. That would equate to a loss of up to £28bn a year for the Treasury.
Collecting even a fraction of this amount would serve to close part of the £40bn a year hole in the public finances identified by the Office for Budget Responsibility in the spending review last month.
Another form of tax avoidance implicit in these forms of businesses that has caused the chancellor, Rishi Sunak, concern is that the platform companies have no physical presence in the UK and so do not have to charge VAT on the export of their services from their European headquarters.
The consultation document highlighted examples of the business practices it wanted to investigate for action where “no VAT [was] being charged where it might have been in the traditional economy”.
These included car-booking rides where “the drivers at this firm are all self-employed”, the fees paid by these drivers to the platform owners located in another country, accommodation provided on a platform and the commission paid by the property owner to a foreign-based accommodation service.
Jolyon Maugham, a tax barrister who runs the Good Law Project and has campaigned through the courts to get Uber to charge VAT on its rides, welcomed the Treasury’s move. He said it was part of ensuring platform companies did not win business purely by “regulatory arbitrage”.
The Treasury recognised that the platform companies had created “huge opportunities” for the UK economy and said the review was designed to “test the government’s view of the VAT challenges the sharing economy creates”.
Uber and TaskRabbit declined to comment. Airbnb could not be reached for comment.
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