VAT AND PRIVATE HIRE HM Treasury and HMRC have provided limited
Set against the agency treatment is Uber’s success in the Sefton case in which it convinced the court that “an operator who accepts a booking from a passenger enters as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.”
At face value, there is a contradiction between a PHO being an agent for VAT and a principal for licencing regulations.
WHAT NOW?
In the short term, steady as she goes. So far, licensing regulations outside London have not changed, nor has HMRC changed its VAT guidance. If you have an operating model that works for you and provides a profitable outcome, this is not the time to change it.
HMRC cannot collect more VAT than you pay now unless:
• Your licensing requirements change, OR
• HMRC disagree with the way you pay VAT today, based on your current operating model.
This means HMRC will not collect any VAT for past VAT periods unless they disagree with the basis on which you are paying VAT today. This would be nothing to do with the Uber and Sefton case.
WHAT IS ON THE HORIZON?
I have been advising clients on VAT and other taxes since 1989 and the actions of HMRC can sometimes beggar belief. With that caveat, this is my considered view of the roadmap from this point.
Any change in VAT treatment of fares for private journeys will not require a change to VAT law or HMRC guidance. If a PHO is a principal in the provision of the service provided to a passenger, it is liable for VAT on the fare collected by the driver. This position is clearly set out in existing VAT guidance published by HMRC. It already applies for account business and employed drivers.
PHTM OCTOBER 2023
reassurances that they do not plan to change any existing guidance for the sector. Unfortunately, that reassurance is not worth a great deal. The key change will not come from HMRC, it will result from changes to licensing requirements. If local authorities require PHOs to act as principal, HMRC will look for VAT to be paid on that basis. In my experience, HMRC will be wholly inflexible in enforcing this position, will assess for unpaid VAT and have little sympathy for businesses unable to pay, beyond agreeing time to pay arrangements.
WHAT CAN I DO?
First, stress test your business for the worst-case outcome.
•Will you still be profitable if you are required to pay 20% on all private fares?
• If not, can you increase fares and remain competitive?
• From a practical perspective, how will you collect data on private fares, so you can pay the correct amount of VAT to HMRC?
Next, support any lobbying activities to preserve the status quo, namely no VAT on private hire journeys. Private hire would be the only form of passenger transport with VAT. There is no VAT if we travel by bus, coach, train, plane, or in a licensed hackney cab. Private hire is a lifeline for many communities who cannot afford a car, or find it difficult to access other forms of public transport due to personal circumstances, or simply because there’s no available bus or train service.
It seems grossly unfair to single out this form of transportation purely because of unrelated licensing regulations.
Finally, this could also be presented as an unexpected Brexit dividend. The UK could not extend zero-rating to private hire pre Brexit, because we were bound by the restrictions of EU law. This is an opportunity to convince the Treasury and your local MP to support our local communities by providing targeted relief from VAT.
For more information, contact Jonathan Maine on 07760 166 802, visit
www.mha.co.uk or email
jonathan.main@
mooreandsmalley.co.uk
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