Uber drivers and Airbnb landlords targeted as Treasury plans to toughen VAT rules

The gig economy is predicted to explode in size by 2025

Uber drivers and Airbnb landlords face a VAT raid as Rishi Sunak seeks to bolster the UK’s battered public finances amid fears that the rise of the sharing economy means losing billions in tax receipts.

The Treasury is considering toughening up rules for the sharing economy, which includes Uber, Airbnb and Deliveroo. Applying VAT could mean prices of using the services rise, potentially by up to a fifth.

Uber drivers and Airbnb landlords are classed as self-employed service providers, meaning that individually, they typically fail to meet the £85,000 at which VAT starts to be charged.  If Uber or Airbnb were classed as the entity providing the service, the 20pc tax would apply, potentially earning billions for the Exchequer.

In a consultation published on Wednesday, the Treasury said the growth of the sharing economy “could potentially create certain challenges to the VAT tax base”, and raised concerns that the status quo might hand unfair advantages to the sharing economy over traditional businesses.

The consultation asks whether it should consider alternative rules that would require the companies themselves to account for the lost tax. Any changes may also require a review of cross-border tax laws, since the online companies involved are often based acroad.

The Treasury cited estimates from PwC that the value of transactions in the sharing economy could increase from £7bn in 2016 to £140bn by 2025, a growth rate of 30pc a year. As well as services like Airbnb and Uber the Treasury pointed to peer-to-peer lenders, household service companies like TaskRabbit and on-demand professional services, for example the jobs website Fiverr, as sharing economy sectors that could be affected.

Uber and HMRC are in an ongoing dispute over whether the company should be classed as a transportation provider, which campaigners have said could see it forced to pay £1.5bn in VAT.

In 2015, the Treasury increased tax relief for Airbnb landlords, allowing them to earn £7,500 without paying income tax.