VAT APPLIED: Will PHV prices rise 20% and why will taxi prices stay the same?

Uber and App Drivers & Couriers Union (ADCU) successfully defeated Sefton Council and a handful of regional operators in a landmark ruling that will undoubtedly change the landscape of the private hire vehicle (PHV) sector.

The crux of the issue centred around who was the principal contract holder with the customer. The operator or the driver.

The court ruled, just like in London, that the operator holds the principle in a booking made. For decades the driver footed the risk of VAT payment should they ease past their individual VAT threshold.

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.

Some reports are claiming that all taxi fares will need to rise because of this. Despite pictures of the iconic black cab circulating next to these misleading headlines, hackney carriage drivers will not be affected.

VAT cannot be applied to a metered fare and taxi drivers turning over less than £85,000 will not be liable to pay VAT.

Crucially all private hire vehicle operators WILL need to pay VAT. But it might not necessarily mean a 20% hike in their fares either.

There are big questions raised by the ruling asking which is an appropriate VAT regime for the private hire industry. Some private hire operators are already arguing that they qualify to apply VAT on their margin from each trip rather than on the full fare.

If VAT is only required on the margin of payment kept by the operator, the rise in prices could be between 6-8% dependent on the percentage the operators take from each fare.

According to Uber, they would claim they have been following HMRC’s own guidance (VAT Order 1987) to apply VAT on the margin of a trip. Other operators including Bolt and FREENOW have been doing the same, as stated on their invoices.

While the ruling provides clarity on the principality of the booking, there remains several big questions unanswered. HMRC will need to decide whether the operators need to pay the full 20% or the marginal in the coming months.