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PHV TAX REVIEW: Government consultation goes live looking at impact of zero rated and marginal VAT rates
In a comprehensive consultation document released by HM Treasury and the Department for Transport, the Government is set to evaluate the impact of recent High Court rulings on the Private Hire Vehicle (PHV) sector, particularly concerning the VAT treatment of PHV fares and the contractual obligations between PHV (PHV) operators and passengers.
The consultation document highlights the 2021 and 2023 High Court judgments, which have introduced significant changes in how VAT is applied, shifting many PHV operators to account for VAT as principal rather than agents. This change aims to simplify tax compliance and ensure fair competition within the sector.
In response to these judgments, the Government is exploring several options including legislative amendments to transport and VAT laws to allow PHV operators to continue acting as agents for VAT purposes while maintaining their principal role in service provision. These changes are aimed at reducing the VAT burden on PHV operators, which could, in turn, mitigate fare increases for passengers.
Further, the document discusses potential targeted interventions, such as introducing a new margin scheme specifically designed for the PHV sector. This scheme would enable PHV operators to account for VAT on the difference between the passenger fare and the driver's commission, thus significantly lowering the effective VAT rate compared to the standard 20% .
The Government has called for feedback on these proposals through a public consultation, encouraging stakeholders from all related fields—including PHV drivers, passengers, and trade bodies—to contribute their views and help shape the future regulatory framework of the PHV sector in the UK.
The consultation aims to consider the economic implications on the Exchequer, which could potentially lose up to £750 million annually from these VAT adjustments.
This consultation presents a critical opportunity for industry stakeholders to influence policy that will determine the balance between fair taxation and maintaining affordable, reliable PHV services across the UK.
