Chambers Wales South East, South West and Mid Partner Xeinadin review the Supreme Court’s pivotal ruling on the VAT position for private hire operators outside of London and what this means for businesses and individuals in the industry.

The Supreme Court delivered a pivotal ruling in the long-running dispute over VAT obligations in the private hire sector, confirming that private hire vehicle (PHV) operators outside of London are not legally required to enter into direct contracts with passengers. This decision upholds the Court of Appeal’s 2024 judgment and offers significant reassurance to PHV firms, driver platforms, and local operators across the UK.

Importantly, this ruling preserves the current VAT treatment and supports the prevalent self-employed driver model that underpins the private hire industry outside of the capital.

What was the case?

The dispute arose from challenges to how PHV operators structure their bookings and contractual arrangements with passengers.

In London, Transport for London (TfL) regulations introduced in 2022 and Court case in December 2021 now require PHV operators, most notably Uber, to contract directly with passengers, which has major VAT implications, effectively treating the operator as the principal and potentially liable for VAT on the full fare.

Operators outside London, however, have historically not been required to enter into these direct contracts, instead acting as intermediaries who facilitate the booking and pass it on to a self-employed driver who delivers the service and contracts directly with the passenger.

Uber sought to extend this interpretation nationwide under the Local Government (Miscellaneous Provisions) Act 1976 to level the playing field as having all operators deemed to be principals in the passenger contract and to push competitors into the same VAT liable position. The case before the courts questioned whether a similar contractual obligation should apply outside of London, potentially redefining the nature of the supply and changing the VAT treatment of PHV fares.

What judgement did the Supreme Court decide?

The Supreme Court agreed with the Court of Appeal’s 2024 decision, confirming that private hire operators outside of London are not required by law to enter into a contract with the passenger for each journey.

This means that the existing operating model can continue outside of London, the private hire operator is not automatically deemed the principal supplier in the transaction and VAT is not automatically due on the full passenger fare by the operator.

What are the VAT implications?

The decision has clear and positive implications for private hire firms and platform-based operators outside of London who can:

• Continue to operate using self-employed driver models without being forced into principal VAT liabilities on gross fare values
• Avoid the cashflow and compliance burden of charging and remitting VAT on all passenger fares.
• Ensure the liability for VAT remains with the driver, where they are registered and subject to the threshold.

However, if contractual documentation does state or imply that the operator contracts directly with passengers, you could still be treated as the principal and liable for VAT. Operators must continue to carefully draft terms and conditions to reflect the actual legal and commercial reality of their arrangements, and HMRC is continuing to review the VAT treatment in this sector.

While this decision should provide peace of mind, operators should also review their current arrangements such as contractual documentation, VAT registration policies, driver agreements and fare collection methods.

Xeinadin’s VAT & Indirect Tax team assist businesses with a full review to ensure that their current business model remains VAT efficient, legally robust and aligned with best practice.