Supreme Court ruling leaves door open to VAT rate shopping for private hire operators, says VAT expert
- Perry Richardson
- 17 minutes ago
- 3 min read
Jonathan Main, VAT Partner at accountancy and advisory firm MHA, has warned that a recent Supreme Court decision leaves open the possibility of VAT rate shopping within the UK’s private hire sector.
The judgment in D.E.L.T.A. Merseyside Limited v Uber Britannia Limited, handed down on 29 July 2025, confirmed that PHOs licensed outside London under the Local Government (Miscellaneous Provisions) Act 1976 can continue to choose between acting as agent or principal when taking bookings. Main notes that this choice has a direct effect on VAT liability.
Under HMRC’s VAT Notice 700/25, a PHO acting as principal must account for VAT on the full passenger fare. As agent, it only pays VAT on commission or service fees, with drivers responsible for VAT on fares if their turnover exceeds the £90,000 registration threshold.
Main points out that PHOs in London, regulated by the Private Vehicles (London) Act 1998, must contract as principal for all bookings, meaning VAT is due on the full fare. This creates a competitive advantage for operators licensed outside the capital who adopt the agency model, potentially reducing VAT costs while competing with London-based rivals.
According to Main, this difference “leaves open the very unsatisfactory possibility” of operators basing themselves outside London to exploit lower VAT liabilities while still serving passengers in the city.
Main said: “The Supreme Court decision preserves the status quo under the 1976 Act and PHOs outside London can continue to choose the contracting model that best suits their business.
“Unfortunately, this is not the end of the story. PHOs licensed within London are regulated by a later, differently worded but similar scheme under the Private Vehicles (London) Act 1998 (“The 1998 Act”), which requires all journeys to be contracted as principal with operators liable for VAT on the full fare paid by the passenger.
“This discrepancy between the 1976 and 1998 Acts leaves open the very unsatisfactory possibility of VAT rate shopping within the UK, if a PHO licensed outside London can use an agency model to compete against a London licensed operator paying VAT in full.”
The Treasury consulted on VAT treatment for the sector in April 2024 but delayed a response until after the Supreme Court decision. Main says that the government now faces a decision on whether to harmonise VAT rules across jurisdictions. At the same time, HMRC must decide whether to appeal a separate Upper Tribunal ruling in favour of Bolt, which allows VAT to be paid only on profit margins using the Tour Operators Margin Scheme.
The expert went on to say that extending a margin scheme nationwide or unifying VAT rules could remove the current incentive for VAT rate shopping. Until then, differences in VAT obligations remain a live competitive factor in the market.
Main added: “One of the options discussed in the HMT consultation is the introduction of a margin scheme, which is similar to TOMS. Could HMRC decide not to challenge Bolt in the Court of Appeal, allowing HMT to endorse the margin scheme as an option for all PHOs across the UK?
“With the Supreme Court’s judgment now final, the legal position for private hire operators outside London is clear, for now. But uncertainty remains. The ongoing VAT disparity between jurisdictions, HMRC’s next move in the Bolt litigation, and HMT’s long-awaited consultation response all signal that further change may be on the horizon.
“PHOs should stay alert to developments and consider how their current contracting model aligns with potential future reforms.”
