PHV MARGINAL VAT: HMRC ‘disappointed’ by VAT tribunal ruling and are ‘carefully considering’ decision

In a pivotal decision that has sent ripples through the ride-hailing industry, the UK Tax Tribunal has ruled in favour of ride-hailing firm Bolt exempting the company from paying Value Added Tax (VAT) on the full value of each ride.

This ruling, which counters HM Revenue & Customs (HMRC)'s stance, implies that Bolt is only liable for VAT on the 'marginal' value it earns, rather than the total fare charged to passengers.

An HMRC spokesperson told TaxiPoint: “We are disappointed with the ruling and are carefully considering the tribunal's decision.

“Our view remains that the Tour Operators Margin Scheme (TOMS) does not apply to minicab businesses.”

HMRC are considered likely to appeal to the Upper Tribunal.

The tribunal's decision follows a contentious appeal by Bolt against HMRC's application of the Tour Operators Margin Scheme (TOMS) to its business model. Established under the VAT Order 1987, TOMS traditionally applies to businesses that resell transportation services without substantial modifications. It requires VAT to be levied only on the profit margin of the resold service, not the entire service cost.

The tribunal's ruling has clarified that Bolt's private hire vehicle (PHV) services do indeed fall within the scope of TOMS.

The implications of this ruling are far-reaching. Not only does it set a precedent for Bolt, but it also impacts the broader ride-hailing sector, including companies like Uber, which is engaged in a similar legal tussle with HMRC. Uber's case, focused on the same issue, is slated for hearing in the first half of 2024.

This landmark ruling marks a significant moment in the evolving narrative of taxation and regulatory frameworks surrounding the gig economy and digital platforms.