UK: Should ride hailing apps charge VAT only on the margin of their fares?

Who this will interest: businesses providing passenger transport services via taxi.

Key point(s): The UK Upper Tribunal decided that the Tour Operator Margin Scheme (TOMS) does not apply to passenger transport services provided by a ride hailing app provider in the Bolt case.

Essentia’s take: The decision overturns the Upper Tribunal and First Tier Tribunal’s decisions. It also seems to go against established case law on the matter and may have a wide impact on sectors currently falling under TOMS.

Action points: Businesses buying and reselling taxi or passenger transport services should review the VAT treatment of their supplies in light of this case. Businesses (outside of tour operators) falling under TOMS should also consider the VAT treatment of their supplies in light of the decisions in this case.

In detail

The UK Upper Tribunal decided that the Tour Operator Margin Scheme (TOMS) does not apply to passenger transport services provided by a ride hailing app provider in the Bolt case.

Bolt is a business that operates a ride haling app, effectively allowing customers to order book a taxi trip via their app. Independent taxi drivers sign up on the app to provide passenger transport services. Customers using the Bolt app can book a trip which is then passed on to the independent drivers. Bolt considers it is acting as principal in relation to the provision of passenger transport services effectively buying such services from the taxi drivers and selling it to the customer booking the trip after applying a certain margin to the cost. It therefore believed that it falls under the TOMS regime and should therefore apply VAT only on the margin made from buying and reselling the passenger transport services. As most of the taxi drivers on the platform were not VAT registered and most of the customers were not in business, this effectively meant Bolt paid less VAT to HMRC by applying the regime.

HMRC of course disagreed with this view and the matter was taken to court.

According to established UK and EU case law, TOMS is not restricted to traditional tour operators and applies to any taxable person buying and reselling services specific to the travel sector without material alteration. Additionally, TOMS does not require a package of services to be provided, which is what traditional tour operators provide. The provision of a single service of the type specific to the TOMS regime is sufficient for the regime to apply.

Because of this TOMS is applied across a wide range of services and sectors both in the UK and the EU.

Both the First Tier Tribunal and the Upper Tribunal decided in favour of Bolt, stating that Bolt was correct in considering that TOMS applies given that the business effectively bought and resold passenger transport services without material alteration.

The Court of Appeal however took a different view and argued that the TOMS scheme should not be extended to the services provided by Bolt as they are neither identical nor relevantly comparable to the scheme. Furthermore, the Court of Appeal stated that extending the scope of TOMS beyond tour operators should only take place if the supplies are in fact similar to supplies made by those sorts of businesses.

As such, applying the Scheme to Bolt’s supplies is not necessary as it would not secure the aims of the scheme, its uniform application or prevent a distortion of competition.

Finally it outlined that businesses operating as travel agents and tour operators do not compete in the provision of mini-cab rides.

Essentia’s take

While the decision makes sense, it does seem to contradict years of practice and case law. Current practice (enforced by HMRC) is that TOMS applies to any supplies of particular types of services associated to tour operators when bought and resold without material alteration. The type of business providing such services has not been a factor in the decision of whether TOMS should apply or not. HMRC has upheld this view until the Bolt decision.

In light of existing case law and practice the decision raises more questions than it answers as it is not clear why Bolt would be different to any other instance where TOMS applies outside of tour operators. How are the aims of the scheme secured by asking any company that offers accommodation or transport in relation to an event to apply TOMS? Or how would competition be distorted in this case if TOMS would not apply?

We expect Bolt to appeal the decision, in which case we may not have a final answer to the question of whether TOMS applies or not in this case until the matter is decided by the Supreme Court.

Impact for businesses

Businesses buying and reselling taxi services as well as passenger transport services in general should review the VAT treatment of their supplies in light of the above.

Businesses outside of tour operators currently applying TOMS should also carefully review the findings of this case (and any potential decision of the Supreme Court) and consider whether it impacts them as well.

If you would like to further discuss the VAT treatment of taxi services, passenger transport or other TOMS related supplies please reach out to us.