Greg McNally

The change is expected to raise approximately £700 million a year. It effectively reverses the taxi and private sector’s recent win in a tax tribunal, where operators successfully argued for the use of the Tour Operators’ Margin Scheme (TOMS), to reduce VAT liabilities.

It has been a long-running question whether private hire operators must charge VAT on the full fare or only on their commission, and whether TOMS can apply.

Most UK taxi/private hire vehicle drivers are self-employed with turnover below the VAT threshold of £90,000, so they do not charge VAT.

Taxi company operators act as agents, charging VAT only on their commission or booking fees, while only VAT-registered drivers account for VAT on fares, and few are registered.

Earlier this year, however, Bolt, a mobility platform that offers private hire vehicle services, successfully argued before a tax tribunal that its private hire vehicle services fall under the Tour Operators Margin Scheme (TOMS) for VAT purposes. 

Bolt argued it should be able to use TOMS, which applies VAT only to the margin of what they charged compared to what they paid to the driver, rather than the full fare. The tribunal agreed, finding that Bolt’s services were not “materially altered” and therefore met the conditions for TOMS.

It doesn’t happen often, but this is a reminder that where a court decision goes against them, the Government can legislate to achieve its desired outcome.

So who will pay this estimated £700m per year? One would assume this will be borne through higher customer fares, reduced operator margins, or a combination of both.

Greg McNally is founding partner of Glasgow-headquartered indirect tax and VAT consultancy VITA