VAT CASES - 28.02.2024

Should VAT on ride-hailing service be based on profit margin?

The case. Bolt Services UK Ltd (B) provides passenger transport services in private hire vehicles (PHVs) to travellers via its smartphone app. In October 2022, the company asked HMRC to confirm that its services qualified as a tour operators margin scheme (TOMS) supply, i.e. output tax was only payable on the profit margin for a deal. HMRC replied by saying that output tax was payable on the full amount paid by the traveller because B was not a tour operator or travel agent. The PHV owners were all in business on their own account and were able to accept or decline jobs offered to them.

The legislation. The UK legislation gives scope for supplies to qualify for TOMS if a service is “commonly provided by tour operators or travel agents” but they must be supplied without material alteration or further processing. B argued that its services were for the benefit of travellers and of a kind that is “commonly provided by tour operators and travel agents” .

The decision. The judge noted that it would cause a “distortion of competition between traders” if a business had to provide a “multiplicity of services” to qualify for TOMS. The definition of a travel agent should include “those who engage in transactions that are identical or at least comparable to those of a travel agent or tour operator”. The appeal was allowed, output tax was only payable on the margin for each of the 39.8 million journeys carried out by B since August 2022 and not the full fare paid by passengers.

Key issues.This decision is a reminder that your business cannot claim input tax on taxi trips carried out by digital app providers such as Bolt and Uber because they have not charged VAT on the full fare that you have paid, i.e. they have only accounted for VAT on the profit margin in their records. HMRC is likely to appeal against this decision.