Uber is able to avoid VAT by exploiting a loophole in how the tax is collected for business-to-business sales across EU borders, which arises because it treats its 40,000 UK drivers as separate businesses, each too small to register for VAT.
It confirmed to Reuters that it does not pay value added tax on the fees it charges British drivers. By contrast, two of its main UK rivals, Gett and mytaxi, both said they do pay VAT on their fees. They declined to comment on Uber's practise.
The loophole applies in other European countries too, but is particularly important for Uber in Britain which accounts for a third of its European business. Other EU countries have put tighter rules in place to close or narrow the loophole.
Paying VAT on Uber's fees would cost the company about 1,000 pounds a year on average for each of its UK drivers, based on information Uber has given about the size of its British business, which is growing rapidly under its expansion plans.
Uber told Reuters it respected the tax rules in all the countries where it operated. Asked whether avoiding paying value added tax gave the company an unfair advantage over its rivals, a spokesman said: "The same rules apply to any international service provider with customers in the UK."
Her Majesty's Revenue and Customs (HMRC), the UK tax authority, declined to comment on Uber, citing confidentiality rules. A spokesman said: "Everyone has to pay the tax due under the law and we make sure they do."
Three European tax experts consulted by Reuters said Uber's practise probably complies with the way Britain has decided to implement EU rules.
But Margaret Hodge, a member of Britain's Labour Party who has long led parliamentary investigations into corporate tax avoidance, criticised Uber's practise of not paying VAT on its fees, when told of it by Reuters.
"It is yet another example of how large companies find loopholes and use the law for a purpose for which it was never intended," she said. "There is a failure to pay tax that should be due. That reduces the money available for public services and is unfair on Uber's competitors."