Government closes consultation on VAT changes for private hire vehicles

The Government's consultation on the VAT treatment of private hire vehicles (PHVs) has officially ended. This consultation, which began in April 2024, aimed to gauge the potential impacts of two pivotal High Court judgments on the PHV sector.

The consultation was initiated following the 2023 High Court judgment in Uber Britannia Limited v Sefton Borough Council, which has since been overturned on appeal, and the 2021 judgment in Uber London Limited v Transport for London. Originally both rulings had clarified that licensed PHV operators must contract directly with passengers, leading to mandatory VAT charges on passenger fares by VAT-registered PHV operators.

The consultation addressed several critical issues:

Impact on PHV Sector and Passengers: The Government sought input on how the judgments would affect PHV operators, drivers, and passengers. Concerns included potential fare increases and reduced journey numbers due to VAT charges.

Potential Government Interventions: Various interventions were considered to mitigate adverse effects, such as amending VAT or transport legislation to allow PHV operators to act as agents for tax purposes while still contracting as principals for service.

Legislative and Fiscal Implications: Changing VAT or transport legislation to revert to pre-judgment positions could cost the Exchequer around £750 million annually. Additionally, such changes would primarily affect England, with the potential to impact Scotland and Northern Ireland if VAT legislation were amended.

Mitigation Options: Original alternatives included applying a reduced VAT rate to PHV services or introducing a margin scheme specific to the PHV sector to lower the effective VAT rate. Since the successful court appeal the liability for VAT has returned back to the driver. A zero rated VAT system would however dispel concerns around thresholds

The consultation, open for 16 weeks, invited responses from PHV operators, drivers, passengers, trade associations, and other stakeholders. Responses will be thoroughly analysed to inform future policy decisions.

The Government will publish a formal response in due course, detailing the next steps based on the feedback received.