VAT QUESTIONED: Legal firm welcomes Government consultation on PHV sector following Uber case

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A legal firm has welcomed the significant development within the taxi and Private Hire Vehicle (PHV) sector, after the UK Government initiated a consultation to assess the implications of recent High Court rulings on the PHV industry, focusing particularly on VAT applications and contractual responsibilities within the trade.

The consultation follows decisions from 2021 and 2023 where the High Court altered VAT treatments, compelling many PHV operators to handle VAT as principals, not agents. This adjustment is designed to streamline tax compliance and promote equitable competition in the industry.

Layla Barke-Jones, a Dispute Resolution Partner at Aaron & Partners, expressed support for the consultation. She highlighted the legal ambiguities and public concerns triggered by the Uber lawsuit, which also prompted their client to appeal.

The consultation document discusses introducing a new margin scheme tailored for the PHV sector. This scheme would allow operators to calculate VAT based on the difference between what passengers pay and the drivers’ commission, potentially reducing the VAT rate significantly below the standard 20%.

The Treasury and the Department for Transport are now seeking input from various stakeholders, including drivers, passengers, and industry representatives, to help craft a regulatory framework that addresses these issues comprehensively. This feedback process is part of the Government's broader strategy to adapt the legislative landscape in response to evolving market dynamics and court rulings affecting the PHV sector.

Layla Barke-Jones, Dispute Resolution Partner at Aaron & Partners, said: “We welcome the government consultation published in response to the case brought by Uber. In the wake of the judgment, we called for Government intervention to prevent the unwanted consequences of this case, so we’re pleased to see it’s begun. 

“The case threw up a number of uncertainties and concerns which we highlighted to the High Court and continue to emphasise. This has led our client to appeal the case and happily now caused the Government to consult on steps that can be taken in licensing or VAT legislation to prevent the impact on consumers and businesses. We share the Government’s objectives of supporting vulnerable consumers who rely on the services of taxi firms, maintaining the safety that the licensing regime provides and promoting fair and open competition for private hire businesses. We have particular concerns around the impact on vulnerable passengers caught in the crossfire who are left paying the price, quite literally, of Uber’s decision to bring the case and seek a declaration forcing VAT onto passengers. The outcome of the consultation needs to be fair so that both passengers and operators are protected. 

“What the consultation recognised is that there is particular impact on those regions in England and Wales outside of London where private hire operators have provided services under the current licensing regime for the last 47 years, using a range of models. The business model that Uber use means they must charge VAT, however this is not the only model and many operators use a model which does not require them to charge VAT to their passengers. 

“We welcome the reassurance from Government that those operators who, unlike Uber, do not charge VAT to their passengers due to the business model they use, will not need to add VAT to the fares while the consultation is ongoing.”