HMRC continues to focus on VAT responsibilities in the private hire sector. Although most individual taxi and private hire drivers are not VAT registered, where a journey is booked through an association or a ride-hailing platform, HMRC expects the operator—not the driver—to account for VAT. For this to apply, the operator must be classified as a “principal”, not an “agent.”
Legal context: Operators as Principals
Licensing decisions—most notably involving Uber in London—have confirmed that private hire operators (PHOs), including Uber and Bolt, act as principals. A further case addressing licensing for PHOs outside of London is expected in the coming months.
This classification potentially exposes such operators to VAT liabilities on the full fare value, not just on their commissions or fees.
The Bolt Case and the TOMS Argument
In a recent decision before the Upper Tribunal, Bolt successfully argued that it is eligible to use the Tour Operators Margin Scheme (TOMS)—meaning it only needs to account for VAT on the margin, not on the full fare.
TOMS is a longstanding component of UK VAT law. Contrary to misconceptions, it is not a loophole or tax avoidance measure. Originally designed for travel operators offering holiday packages, TOMS simplifies VAT obligations by allowing operators to pay VAT on the profit margin from bundled travel services—particularly useful before Brexit when UK firms operated across the EU.
Bolt’s position was that it purchases transport services from self-employed private hire vehicle (PHV) drivers and resells these services without material alteration. It contracts separately with both the driver and the passenger, and is responsible for all payments and invoicing. There is no direct contractual relationship between drivers and passengers.
On this basis, Bolt’s eligibility to use TOMS was upheld. The judgment did not suggest that Bolt’s operations differ outside of London, implying consistency in its principal role across the UK.
HMRC Guidance and Risk Areas
HMRC’s own guidance acknowledges that some operators—particularly taxi associations—may act as agents provided specific conditions are met, including that the driver is genuinely self-employed. However, the guidance is complex, and where contractual terms are unclear or VAT considerations overlooked, the risk of HMRC challenge increases.
One recent First Tier Tribunal case underlines this risk: HMRC asserted principal status without providing sufficient reasoning, and while the tribunal rejected the claim, the firm involved incurred significant time and cost in defending its position.
What’s next?
HMRC held a consultation in 2023 on the VAT treatment of private hire vehicles. However, further action is pending a Supreme Court ruling related to PHO licensing outside London. There is also a possibility that HMRC could seek to limit or abolish TOMS in the future.
Businesses operating under the assumption of agency status should review their models and terms and conditions to ensure they support that position.
For tailored advice on how these developments may affect you, contact Steve Chamberlain or get in touch!