FULL, MARGINAL OR ZERO-RATED VAT: Which one is right for the PHV industry following court ruling?
Uber and the App Drivers & Couriers Union (ADCU) successful court ruling against Sefton Council & other named regional operators prompted new UK tax obligations on the sector’s operators.
Moving to a merchant model will require operators to change their business processes and contractual arrangements, and as a result, impacts the way that VAT is charged.
Big ride-hail operators such as Uber, Bolt and FREENOW had already made business model changes outside of London prior to the landmark that is about to force many operators to change their working models.
One of the questions raised by these rulings is which is the appropriate VAT regime for the whole Private Hire industry? Crucially it is likely that private hire operators will qualify to apply VAT on their margin from each trip rather than on the full fare. The latter would have significant implications for the entire industry and its passengers.
Uber would claim that they have already been following HMRC’s own guidance (VAT Order 1987) to apply VAT on the margin of a trip. Other big-name operators are also believed to be working to this principle.
The result of this court case has already pushed the private hire industry to call for zero-rated VAT like other forms of passenger transport such as coaches, trains, and buses. For black cab drivers they too are not liable for VAT should their revenue stay under the £85,000 tax threshold.
Internationally, many countries have implemented reduced or zero VAT rates for taxis and PHVs, providing financial relief for drivers and promoting the growth of the sector. In Ireland and Denmark for instance, a 0% VAT rate is applied to these services.
Similarly, countries like Portugal, Belgium, and Sweden have set a VAT rate of 6% for taxis and PHVs, striking a balance between revenue collection and supporting the industry. Germany follows closely with a 7% VAT rate, while France, Italy, Spain, and Australia have opted for a 10% VAT rate.
Introducing such reduced or zero-rated VAT rates would likely enable operators to offer more competitive prices to passengers.
Layla Barke-Jones, a Partner in the Dispute Resolution team at the law firm Aaron & Partners, acting on behalf of a group of Liverpool-based taxi firms, including Delta Taxis, said: “It is important to remember that this case was not about Delta’s tax liability but the potential for HMRC to require Delta to collect vat for HMRC.
“VAT is charged to the passengers and passed to the government. Delta’s stance in this case has been to try to protect the passengers. Given the potential for such large fare increases this now requires urgent government action to prevent VAT from being charged on private hire fares.”
She added: “Without a doubt, the case has the potential to cause significantly increased costs that will hit passengers everywhere at the time of a cost-of-living crisis.
“Delta had hoped to protect passengers from such an impact and will now call on Government to make private hire taxi journeys zero rated for tax purposes, in line with other forms of transport like buses and trains, to prevent this impact on some of the most vulnerable in society for whom private hire taxis can be the only form of transport available to them.”
