The recent Upper-Tier Tribunal decision in the case of Bolt Services UK Limited (“Bolt”) dealt with the VAT treatment of private hire vehicle travel provided to customers via a ride-hailing app. Under the terms of its contract with Transport for London (TfL), Bolt was required to supply the travel services to the customer as a principal and not as an agent. However, all the relevant drivers used by Bolt were self-employed independent contractors and thus supplied their services to Bolt.

The First-Tier Tribunal originally determined that the services supplied by Bolt fell within the VAT Tour Operators Margin Scheme (“TOMS”) given that:

1. it was supplying “designated travel services” to the customer, and
2. the services were bought in from independent contractors and sold on without material alteration.

The result of the above is that Bolt was only obliged to declare VAT on its “margin”, i.e. the difference between the amount paid by the customer and the amount paid to the independent contractor.

HMRC challenged the above judgment on a number of grounds, including an argument that Bolt was not supplying a service that was comparable or similar to a service provided by a tour operator and an argument that the services bought in by Bolt were not supplied onward without “material alteration”.  However, the Upper Tribunal denied all grounds of appeal and thus upheld the earlier decision of the First-Tier Tribunal.

Technically the above decision is only relevant for private hire businesses (who utilise self-employed drivers) that operate under the terms of an agreement with TfL. Similar businesses operating in other parts of the country are able to achieve the same objective by acting as agents of the self-employed drivers, arranging the supply made to the customer.  However, the bottom line is that any taxi or private hire business using self-employed contractors to fulfill its services to customers should be in a position to structure those services so that VAT is only payable on the “margin” retained by the business.

If a taxi or private hire business is using self-employed contractors to deliver a service to customers and is declaring VAT on the full charge made, it should contact The VAT People to discuss the potential for restructuring its services and reducing its VAT liability. Get in touch by calling our free helpline on 0161 477 6600.