Supreme Court backs taxi operators following Uber cases
The UK Supreme Court has found that private hire taxi firms outside of London do not (and are not required to) contract directly with passengers and act as principals in providing the underlying passenger transport service. This means VAT is not chargeable/payable on the full fare.
Instead, private hire firms can continue to adopt alternative operating models, including the commonly used standard Agency model. They can also carry on charging VAT only on their commissions/fees.
The outcome follows years of litigation by Uber, which has sought to ‘level the playing field’ for the private hire sector across the UK following its worker status and Transport for London (TfL) battles.
What are the implications?
The position remains complex for Uber and similar operators.
HMRC and the courts currently appear to see Uber as being a principal in supplying the transport service (meaning VAT owed on the full fare). This should also apply to other private hire firms operating a similar model to Uber or which are regulated as Ride-Hailing firms by TfL in London.
Uber appears to be making the case to HMRC that, if they are a principal, they are in fact a Tour Operator (under the VAT Tour Operators’ Margins Scheme - TOMS) in supplying the transport service, and therefore VAT is only due on the gross margin they achieve rather than the full fare.
If Uber’s stance is correct, this will significantly reduce their VAT liability.
Meanwhile, Bolt (an unconnected private hire operator already contracting with customers as a principal) has recently won a VAT case supporting the application of TOMS. However, HMRC seems convinced that the Bolt position is incorrect and TOMS cannot apply to the private hire sector. As a result, more litigation on this point seems inevitable.
Next steps
The Supreme Court’s decision seems to create a potential two-tier VAT regime for the sector:
- Uber and other London-based private hire firms are tied to being a principal in view of the regulatory environment.
- Firms operating outside of London are deemed as not the principal and they are free to adopt another Agency model.
Overall, the ruling produces yet more uncertainty for the private hire sector, with HMRC’s long-awaited response to its 2024 Consultation on VAT in the private hire industry still pending.
The best approach for private hire firms will depend upon a number of individual factors and they are strongly advised to seek specialist VAT advice as to how best to protect their position.
We’re here to help
If you are operating in the private hire sector and are unsure on the appropriate VAT treatment or how to optimise your position, please get in touch with our VAT team via the form below.
