VAT treatment of private hire vehicles consultation

The government has released a consultation addressing the potential VAT implications of recent case law developments on the Private Hire Vehicle (PHV) sector and its passengers.

The consultation 'VAT Treatment of Private Hire Vehicles' seeks to resolve the uncertainty created by the high court rulings in Uber Britannia Limited v Sefton Borough Council [2023] EWHC 1975 and Uber London Limited v Transport for London [2021] EWHC 3290. 

What is the VAT problem?

  • It all boils down to whether taxi fares are subject to VAT.
  • Fares charged to passengers for Taxi or Private Hire Vehicle (PHV) services are subject to VAT at the standard rate, unless 
    • The supplier is either not VAT registered or required to be VAT registered. 
    • The vehicle is designed or adapted to carry at least 10 passengers, in which case zero-rating applies.
  • The liability to charge VAT on PHV services sits with the person or business making the supply.  
  • When a VAT-registered PHV Operator (PHVO) acts as Principal (i.e. the PHVO makes the supply), it must account for VAT on the full amount of fares paid by passengers. 
  • When VAT-registered PHVOs act as Agents (i.e. a self-employed driver is making the supply), PHVOs only account for VAT on fees charged to self-employed drivers, not on the fare that the driver charges the passenger.

The recent High Court rulings in Uber Britannia Limited v Sefton Borough Council [2023] EWHC 1975 and Uber London Limited v Transport for London [2021] EWHC 3290 have raised uncertainty regarding the previously accepted VAT treatment.

The High Court judgments found that a PHVO accepting a booking from a passenger must "enter as principal into a contractual obligation with the passenger to provide the journey."

While unrelated to tax law, the consequence is that VAT-registered PHVOs in England and Wales would be required to charge VAT on all PHV passenger fares to align with these judgments.

Given an upcoming appeal to the 2023 High Court judgment scheduled for later this year, the government is seeking feedback on the potential ramifications of the ruling and the available options.

The consultation explores two potential solutions:

  1. Legislative amendment:
    • Modifying the legislation to shift the contractual relationship to be between the driver and passenger, rather than between the PHVO and passenger. 
    • Amending VAT legislation to enable PHVOs to account for VAT as if they were agents for tax purposes while acting as principals for services provided to passengers.
  2. Targeted interventions:
    • Adjusting the VAT treatment of PHV services.
      • This might be by applying the reduced or zero rate of VAT, or by introducing a sector-specific margin scheme. 
    • Implementing specific interventions aimed at consumers.
      • For example, broadening existing transport schemes or introducing zero-rate demand responsive transport services to help those living in rural areas with fewer transport options.

The consultation document confirms that whilst the government is consulting on this issue, PHVOs and drivers can rely on existing HMRC guidance, which allows PHVOs to continue to account for VAT as agents if that is how their business is structured. 

The consultation is open until 8 August 2024. Responses can be made online or by post. 

Consultation Questions 

Question 1: In what capacity are you responding (e.g. a PHVO, a driver, a consumer, a representative body etc.)?

Question 2: What are your views on this analysis and the assumptions underpinning it? Where respondents disagree, the government would be grateful if you could please provide details of why you disagree and/or alternative analysis.

Question 3: 

If you are a consumer:

  1. How often do you get a PHV (noting that, as set out in Chapter 1, these are different to taxis)?
  2. When you get a PHV, what are the most common reasons for your trip (e.g. work, social, medical appointments)?
  3. Are there alternative forms of transport available to you (e.g. taxis, your own car, public transport, walking)?
  4. On average, how far do you usually travel in a PHV?
  5. On average, how much do you usually pay for a PHV trip?
  6. How do you fund these journeys? (e.g. Do you pay for them yourself? Do you put benefit payments towards them? Does your employer pay for them?)

If you are a consumer representative body, the government would welcome any aggregated responses to the above questions that you are able to provide on behalf of your members.

If you are a PHVO, we would welcome any data you have on:

  1. Your customer makeup (e.g. breakdown of business v consumer and characteristics of your customers).
  2. How often do individual customers typically travel with you?
  3. The most common reasons why customers travel with you.
  4. How far do your customers typically travel?
  5. How much do your customers typically pay per trip?

Question 4: In what ways do you expect the 2023 High Court judgment to impact you (if you are a consumer or PHV driver), or your business (if you are a PHVO)?

Question 5: How has the 2021 High Court judgment concerning London impacted you (if you are a consumer using London-based PHVOs, or a PHV driver working for a London-based PHVO), or your business (if you are a PHVO operating in London)?

Question 6: If you are a PHVO, have you made any changes to your business model and the way in which you account for VAT since either the 2021 and/or 2023 High Court judgments? If so, please provide details.

Question 7: Do you agree that these are the right objectives for the government to be assessing options against? Are there any other objectives you think the government should be considering?

Question 8: What are your views on amending PHV, and potentially taxi, legislation in England to allow drivers, rather than PHVOs, to contract with passengers?

Question 9: Do you think this option meets the objectives outlined in Chapter 5? Please provide details.

Question 10: Are you able to articulate a way in which PHV, and potentially taxi, legislation in England could be amended so that PHV drivers could contract with passengers as principal, but that did not result in a single-tier system? Please provide details.

Question 11: If the UK Government was to amend PHV legislation in England to enable PHV drivers to contract with passengers, what impacts do you think this would have on the trade and passengers, particularly those with protected characteristics?

Question 12: Do you think, in order to prevent passengers from having to pay VAT on the full fare in England, the taxi and PHV sector should move to a single-tier system? Please provide details.

Question 13: Who do you think would benefit from amending the VAT Act to allow PHVOs to account for VAT as though they were agents for tax purposes, but act as principal for services to passengers?

Question 14: Are there any other potential unintended consequences of this approach that are not outlined above? Please provide details.

Question 15: Do you think this option meets the objectives outlined in Chapter 5? Please provide details.

Question 16: What are your views on these VAT options?

Question 17: Do you think a margin scheme meets the objectives outlined in Chapter 5? Please provide details.

Question 18: Are there any other potential benefits of a margin scheme that are not outlined above?

Question 19: Are there any other potential unintended consequences of a margin scheme that are not outlined above?

Question 20: What are your views on these targeted interventions for consumers? Who do you think this sort of intervention would benefit?

Question 21: Are there any other views or comments you would like to provide that have not been covered in your responses to other questions?

Useful guides on this topic 

Tax and taxis: Is there a new 'taxi tax'?
Some news outlets seem to think that there is a new form of 'taxi-tax'. There is no new tax but a dispute about VAT. We take a closer look at the issues.

Agents and principals
What is an agent for VAT purposes? What is a principal? When do the agency rules apply? 

Conditionality: Taxi, private hire vehicles and scrap licenses
What is tax conditionality? Does this affect tax registration? The renewal of certain licences, to drive taxis and private hire vehicles or deal in scrap metal, is conditional on applicants confirming that they are appropriately registered for tax. 

Registering for VAT
When should a business register for and charge VAT? What are the VAT registration thresholds? What penalties might HMRC issue for late notification of registration? When do you need to file a VAT return?

VAT thresholds
Certain thresholds must be reached for either the registration or deregistration of VAT.

External links 

Consultation VAT Treatment of Private Hire Vehicles