In DELTA Merseyside Limited and Anor v Uber Britannia Limited [2024] EWCA Civ 802, the Court of Appeal (CoA) overturned the High Court's ruling, finding that Private Hire Vehicle Operators (PHVOs) outside London can be treated as agents for VAT purposes.
While this case does not directly address VAT issues, it has significant implications for the VAT treatment of PHVOs.
Are taxi and Private Hire Vehicle (PHV) services subject to VAT?
- Fares charged to passengers for Taxi or Private Hire Vehicle (PHV) services are typically subject to VAT at the Standard rate unless:
- The supplier is not VAT-registered or required to be VAT-registered.
- The vehicle is designed or adapted to carry at least 10 passengers, which qualifies for zero rating.
Who is responsible for paying VAT on taxi and PHV services?
- Many cabbies work with PHV operators, raising the question: Who is responsible for paying VAT on passenger fares?
- In brief, the responsibility for charging VAT on PHV services lies with the entity making the supply.
- If a VAT-registered PHV operator acts as Principal, it must account for VAT on the total fares paid by passengers.
- Where the drivers are employees of the PHV operator, the PHV operator will be acting as a principal for VAT purposes. See Agents and principals.
- The PHV operators may also be acting as principals where the drivers are self-employed; this will depend on contract terms and working practices. See Agents and principals.
- If the PHV operator acts as an Agent, the PHV operator will pay VAT on the fees charged to self-employed drivers, not the fares passengers pay to the drivers. The self-employed driver will then pay VAT on the fares charged to passengers (if they are VAT registered or required to be).
- If a VAT-registered PHV operator acts as Principal, it must account for VAT on the total fares paid by passengers.
- However, recent case law has brought into question the VAT treatment for PHV operators.
What is the VAT problem?
- In United Trade Action Group Ltd, R (oao) v Transport for London [2021] EWHC 3290, the High Court (HC) found that to operate lawfully, "... a licensed operator (in London) who accepts a booking from a passenger is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking”.
- In Uber Britannia Limited v Sefton Metropolitan Borough Council [2023] EWHC 1975, the HC found that to operate lawfully, where a licensed operator outside of London accepts a booking from a passenger, they are required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.
- In July 2024 the Court of Appeal's (CoA's) ruling in DELTA Merseyside Limited and Anor v Uber Britannia Limited [2024] EWCA Civ 802 reversed this HC decision where a licensed PHV operator is outside of London.
- The key issue was whether an operator is required by the law to enter into a contract as principal with a person making a booking for a PHV.
- The CoA clarified that the statutory language differentiates between accepting a booking and making a contract of hire. Thus, a contract of hire is deemed to be made with the operator who accepted the booking, whether or not they provided the vehicle.
- The CoA concluded that PHV operators (outside of London) are not required to contract as principals to operate lawfully.
- This decision mandates that VAT-registered PHV operators (outside of London) acting as agents are only required to account for VAT on the fees they charge self-employed drivers, and not on the fares collected by the drivers from passengers.
What does this mean?
- The CoA judgment creates inconsistencies between London and the rest of England and Wales.
- For London PHV operators:
- To operate lawfully, "... a licensed operator who accepts a booking from a passenger is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking”.
- London PHV operators must account for VAT on the full amount of fares paid by customers.
- For PHV operators outside of London:
- PHV operators are not required to contract as principals to operate lawfully.
- VAT-registered PHV operators (outside of London) acting as agents are only required to account for VAT on the fees they charge self-employed drivers, and not on the fares collected by the drivers from passengers.
- There is still uncertainty over the VAT treatment as Uber, which already charges VAT on fares, is considering an appeal of the CoA decision.
Useful guides on this topic
Rates & Fractions (VAT)
What is the VAT rate? What is the VAT fraction for VAT at 5% or 12.5% or 20%? How do I calculate VAT?
Registering for VAT
When should a business register for and charge VAT? What are the VAT registration thresholds? What penalties might HMRC issue for late notification of registration? When do you need to file a VAT return?
Agents and principals
What is an agent for VAT purposes? What is a principal? When do the agency rules apply?
Conditionality: Taxi, private hire vehicles and scrap licenses
What is tax conditionality? Does this affect tax registration? The renewal of certain licences, to drive taxis and private hire vehicles or deal in scrap metal, is conditional on applicants confirming that they are appropriately registered for tax.
VAT treatment of private hire vehicles consultation
The government has released a consultation addressing the potential VAT implications of recent case law developments on the Private Hire Vehicle (PHV) sector and its passengers.
Tax and taxis: Is there a new 'taxi tax'?
Some news outlets seem to think that there is a new form of 'taxi-tax'. There is no new tax but a dispute about VAT. We take a closer look at the issues.
VAT thresholds
Certain thresholds must be reached for either the registration or deregistration of VAT.
External Links
D.E.L.T.A. Merseyside Limited and Veezu Holdings Limited v Uber Britannia Limited WWHC 1975 (KB)
