Any changes to PHV VAT rules must not leave taxi sector ‘uncompetitive or harmed’ warns taxi booking app boss

Any changes to minicab VAT rules must not leave the taxi sector ‘uncompetitive or harmed’ warns FREENOW boss.

Mariusz Zabrocki, General Manager of FREENOW UK, did however welcome the Government's recent move to consult on the VAT treatment within the private hire vehicle (PHV) sector. Zabrocki emphasised the importance of a fair tax regime, noting the reliance of many on the industry for livelihood amidst challenging socio-economic conditions.

FREENOW, which has been contributing to UK tax revenues since 2011, argues against the proposed zero VAT rate which many of the other PHV operators are calling for.

There is also a strong view that any favourable VAT changes for the PHV industry should not leave the taxi sector uncompetitive or harmed as a result.

The comments follow a detailed consultation document issued by HM Treasury and the Department for Transport. The document reviews the implications of 2021 and 2023 High Court decisions that have altered VAT responsibilities from agents to principals among PHV operators, aiming to ease tax compliance and enhance competitive fairness.

In response, the Government is considering legislative tweaks to transport and VAT regulations to potentially allow PHV companies to maintain their agency status for VAT purposes, while continuing their primary role in service delivery. This adjustment could lessen the VAT load on operators and prevent a surge in passenger prices.

Additionally, the introduction of a new margin scheme is under discussion. This scheme would permit PHV operators to calculate VAT based on the margin between the passenger fare and the driver's commission, potentially reducing the effective VAT rate significantly below the standard 20%.

The public consultation, now live, seeks input from a broad range of stakeholders, including drivers, passengers, and industry associations, to help sculpt a balanced regulatory framework for the UK's PHV sector.

Mariusz Zabrocki, FREENOW UK General Manager, said: “FREENOW is glad to see the Government launching this consultation. The current uncertain VAT status has already led to a sharp reduction of investment and competition in the sector, which is not ideal considering the current socio-economic landscape and the fact that so many people rely on this industry to make ends meet. 

“FREENOW has paid its share in taxes since its launch in the UK in 2011, and we believe all PHV operators should pay VAT, so we’re against the 0% rate for PHV as proposed by some of the operators.

“We believe that any future decisions need to ensure there is a level playing field when it comes to the whole industry, ensuring that the taxi industry is not negatively impacted by any potential changes in favour of private hire.”