MAKING A BOLT FOR IT – TAXING TAXIS (AND PERHAPS SERVICED ACCOMMODATION)
Released On 31st Jan 2024
Outside of London many taxi firms treat themselves as agents introducing customers to independent vehicle hire providers.
Many taxi drivers operate below the VAT registration threshold, which means that the fare charged can be VAT free but the firm’s fee (commission) to the driver is subject to VAT.
In London the case is slightly different due to the manner in which drivers are licensed, suggesting that suppliers such as Uber are the ‘Principals’ supplying the service so that VAT is due on the entirety of the fare.
In a recent VAT case, a taxi firm called Bolt, which provides a mobile app for booking taxis, agreed that it was also acting as ‘Principal’ but also argued that a VAT Scheme – the Tour Operator’s Margin Scheme (or “TOMS”) should apply.
TOMS traditionally applies where a business puts together a package consisting of accommodation, passenger transport, hire of the means of transport, trips and excursions. As long as the conditions for the scheme are met (including that supplies are not ‘materially altered’) then the business only needs to account for VAT on the margin between what the items within the package have been bought in for, and what they are supplied for.
The Tribunal has agreed with Bolt’s position that TOMS applied. To some degree this puts Bolt onto a similar footing to those taxi firms outside of London which treat themselves as agents (i.e. VAT is only chargeable on their fee).
However, this could be an important case going forward. In the Autumn Statement the Government announced a consultation on “VAT Treatment of Private Hire Vehicles” – the suspicion being that they are seeking to regularise the position so that other taxi firms are treated as ‘Principals’. If so, the Bolt case could prove helpful.
Further, it is also the case that the scope of TOMS seems to be widening. In another case, ‘Sonder Europe’ – TOMS has been used in respect of ‘Serviced Accommodation’. In this case the owner of the accommodation has let it to an associated business providing individual lets of the short-term accommodation. The associated business used TOMS to account for VAT on the margin that it achieved.
On this basis, it may well be that TOMS could prove helpful where either accommodation or travel services are arranged via a third party (particularly via an App). All of the cases mentioned in this article (including the treatment of Uber’s services) are to be appealed and so could change but this is certainly an area of VAT to keep an eye on.
An expert opinion
VAT regulations are notoriously difficult to navigate.
It is arguably one of the most complex of the taxes faced by businesses, and business owners are urged to seek professional advice in instances where VAT is causing them any difficulties.
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