UK ride-hailing companies could qualify for special VAT status under tour operators’ margin scheme

TOMS is a special VAT scheme designed to simplify tax processes for businesses in the travel industry. It originated within the EU as a measure to avoid the complexity of registering for VAT in multiple EU member states when tour operators buy in and resell travel, accommodation and certain other services.

Following the ruling, companies providing private hire services through smartphone applications and websites are now considered as tour operators under TOMS, allowing them to charge VAT on the profit margin made from supplying the services rather than the full selling price. This could potentially reduce the VAT liability for private hire operators.

The Upper Tribunal case concerns the VAT treatment of ride hailing services provider Bolt. Bolt acts as a principal providing the ride service to the traveller, with the driver and the traveller having been matched through the app. Drivers own their own cars and sign up to Bolt to be able to provide rides, but they can accept or reject the ride offered to them via the app.

Bolt submitted its VAT returns on the basis that the service it provided fell within TOMS. HM Revenue and Customs (HMRC) challenged Bolt’s VAT practice before the First-Tier Tribunal (FTT). The FTT ruled that the services supplied by Bolt were of a kind usually provided by tour operators, and the services were supplied without material alteration by Bolt and therefore had not become “in-house” services created by Bolt, which would have excluded them from the TOMS. As a result, the tribunal found the VAT treatment applied by Bolt to be correct.

HMRC appealed to the Upper Tribunal against both parts of the decision. The Upper Tribunal dismissed the appeal and upheld the FTT’s decision in its entirety. The Upper Tribunal’s decision highlighted several factors that are important for determining eligibility for TOMS.

The tribunal noted that there was no reason why the FTT had to adopt a detailed exercise of comparability with tour operators’ activities, confirming that a high-level approach is acceptable. According to the ruling, the fact that Bolt’s services were on-demand and available on a 24-hour basis was not a reason to disqualify them from being treated as the type of services provided by tour operators. Similarly, the fact that Bolt’s services were to take travellers to places that would not commonly be serviced by tour operators was also not a relevant factor, because it was accepted as a fact by the FTT that at least a proportion of Bolt’s journeys were either to or from airports and train stations.

The key consideration in the Upper Tribunal’s analysis was that the supplies of travel services bought-in by Bolt, which were the services of the drivers, were for the direct benefit of the travellers, which were Bolt’s customers; and the fact that these supplies were not altered by additional services made by Bolt, such as reservation or handling payment.

Tax expert Bryn Reynolds of Pinsent Masons said: “The London private hire industry was impacted by High Court and Supreme Court judgements in 2021 regarding worker status and the requirement of a licensed operator to act as principal. The VAT status of the industry is now being impacted again. It is a pity that the government has not yet provided a formal response to the ‘VAT Treatment of Private Hire Vehicles’ consultation that closed in August 2024 to give the industry certainty as to the future position.”

This Upper Tribunal ruling is expected to have implications for HMRC and may cast doubt on the future of TOMS in the UK. “The Tour Operators Margin Scheme is a vestige of the UK’s EU membership. It’s a niche simplification mechanism designed to prevent tour operators from being required to register for VAT in every member state. The purpose of this simplification mechanism in a single territory market is unclear and it would not be surprising for HMRC to decide, at this stage, that it is more trouble than it is worth,” he said.