Bolt UK VAT Ruling Raises Tax Questions for Ride-Hailing Services

Bolt Services UK Ltd. successfully defended its UK value-added tax liability in a recent decision by the Upper Tribunal—a landmark ruling that has clarified the position for private hire operators in the UK.

The decision sets a precedent that could influence the tax treatment of similar services across the industry, potentially leading to broader changes in how ride-hailing services manage their VAT obligations. They should stay informed about future developments and adjust their business models accordingly to ensure compliance and optimize profitability.

Since Aug. 1, 2022, Bolt’s operational model has been to act as the principal in the re-supply of passenger transport by private hire vehicles. Bolt buys services from self-employed private hire vehicle drivers and re-supplies them to customers. Bolt manages all invoicing and payments, with no direct contractual relationship between drivers and customers.

Bolt implemented the Tour Operators Margin Scheme, or TOMS, accounting for VAT liability on the margin between the amount paid to drivers and the fare charged to passengers.

TOMS is a special VAT accounting system used in the UK and EU for businesses that buy in and resell travel services, such as passenger transport, hotel accommodation, and car hire.

It facilitates VAT accounting in the country where the supplier is established— eliminating the need for VAT registrations in multiple jurisdictions—by accounting for VAT based on the margin, which negates the need to recover any input tax.

Consequently, the country where the TOMS supply occurs receives VAT on the local costs, while the tax authority in the supplier’s country receives VAT on any profit earned.

Since Brexit, TOMS is no longer needed in the UK, as there is only one registration required for accounting for VAT on supplies that are made in the country, but the mechanism remains in place.

The UK tax authority, HM Revenue & Customs, challenged this arrangement at the First-tier Tribunal. The primary considerations for the tribunal were whether:

• The services provided by Bolt are typically associated with those offered by tour operators or travel agents.
• Bolt supplied the services of the drivers to passengers without significant modification or further processing.

The first-tier tribunal decided in favor of Bolt on both points, after which HMRC appealed to the upper tribunal. The upper tribunal dismissed HMRC’s appeal, finding that the special VAT treatment under TOMS applies when services are rendered for the direct benefit of the traveler, provided they aren’t materially altered and aren’t contingent on the service being included in a broader package.

Implications of Ruling

The March 24 ruling confirms that private hire operator services when supplied by an operator acting as principal, can use TOMS for VAT purposes. These operators only have to account for VAT on the margin between the amount paid to drivers and the fare charged to passengers.

If private hire operators who have the same business model as Bolt aren’t using TOMS, they could apply the scheme and pass on possible savings to their customers. However, if they’re using TOMS, the decision confirms that they are right to do so. This removes any additional liability but they won’t have any savings to pass on.

Ride-hailing services may need to review and adjust their business models if they want to align with the VAT treatment confirmed by the tribunal. This could involve changing how they invoice and handle payments between drivers and passengers.

Future Developments

Another private hire operator, Uber Technologies Inc., will be in the UK Supreme Court in July, having lost a case in the Court of Appeal last year. The US ride-hailing services company is seeking clarity on the contractual models that influence how VAT is applied to private-hire companies outside of London, which they contend would create a more equitable environment for businesses across the UK.

HM Treasury issued a consultation in April 2024 on the future VAT liability of private hire journeys. The outcome will be published following the Supreme Court decision expected in the Autumn.

Until then, the Upper Tribunal ruling provides a clearer framework for VAT liability for ride-hailing services, but operators should stay informed about potential appeals and future regulatory changes. The decision sets a precedent that could influence the tax treatment of similar services across the industry, potentially leading to broader changes in how ride-hailing services manage their VAT obligations.

HMRC may attempt to take the case to the Court of Appeal, which could further impact the VAT liability for private hire operators and will continue the uncertainty in an area where there has been much litigation in recent years.

Meanwhile, private hire operators should:

• Evaluate TOMS. Consider whether TOMS applies to their business models and the impact that it will have on the amount of VAT that has to be declared to HMRC.
• Review VAT guidance. Follow longstanding HMRC guidance on agency status for cash journeys: This ensures that they remain compliant with existing regulations while preparing for potential changes.
• Plan for future changes. Prepare for potential changes in VAT liability based on the upcoming UK Supreme Court decision and HM Treasury consultation outcomes. Staying proactive and adaptable will be crucial in navigating the evolving regulatory landscape

EU VAT Initiative

The EU’s VAT in the Digital Age initiative introduces significant changes for passenger transport services facilitated by online platforms. Starting Jan. 1, 2030, in a shift toward great accountability platforms will be liable for charging and remitting VAT on passenger transport services they facilitate. TOMS no longer will be applicable for these services.

Excluding TOMS means that platforms will need to comply with standard VAT regulations and will have to account for VAT on the full price paid by the traveler rather than on the margin, which will affect their financial and operational strategies within the EU.

The UK may consider adopting a similar approach, as it could lead to an increase in VAT revenue, although implementing such measures could take several years.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Ajay Raval is senior VAT manager at Crowe UK.

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