VAT victory for Bolt as HMRC loses case over Tour Operator Margin Scheme charges

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Bolt has won its appeal against HMRC over whether private hire operators are eligible to use the Tour Operator Margin Scheme (TOMS), which reduces liability for VAT to the margin of a trip rather than the full fare.

The ruling is a major victory for the private hire sector, as it effectively kills off HMRC’s attempts to force all private hire operators to charge full 20% VAT on fares.

Ruling in favour of Bolt, the Tax Tribunal Judge Greg Sinfield KC said: “I have decided that the mobile ride-hailing services supplied by Bolt are services of a kind, namely passenger transport, commonly provided by tour operators or travel agents and the supply of such services falls within the scope of the TOMS.”

The dispute concerned the amount of VAT due on the supplies of ride-hailing services made by Bolt as ‘principal’. Judge Sinfield said: “There is no dispute that supplies of ride-hailing services are chargeable to VAT at the standard rate.”

But he ruled that Bolt should not account for VAT on the total amount paid by the customer. Instead it should charge VAT only on the margin (the difference between the amount paid by the customer and the cost to Bolt of goods or services supplied by taxable persons and used directly to provide the service).

So if Bolt’s margin on a fare was 15%, VAT would only be chargeable on that portion of the fare.

Judge Sinfield dismissed HMRC’s argument that Bolt had “materially altered” the service provided by its independent drivers. HMRC’s case was that tour operators and travel agents buy in services and simply pass them on to the traveller, whereas it argued that the bought-in drivers’ services are changed by the use of Bolt’s own resources and therefore they are ‘in-house’ or materially altered because they are not merely passed on. “I do not agree with this analysis,” the judge said.

“I consider that the supply of mobile ride-hailing services, without any additional elements, to a traveller is a provision of travel facilities within the TOMS in the same way as a supply of accommodation only,” he concluded.

The judge also said there should be no distinction between ride-hailing services and pre-booked journeys. “Any distinction based on how far in advance a ride was booked would necessarily be arbitrary, eg a ride booked two hours in advance is within the TOMS whereas one booked one hour 59 minutes before the pick-up is not. Such a threshold cannot be determinative,” the judge said.

“It seems to me that ride-hailing services and scheduled rides cannot be differentiated and are both services of a kind commonly provided by tour operators or travel agents for the same reasons. It follows that I do not need to consider where the dividing line lies between ride-hailing services and scheduled services for the purposes of the TOMS.”

The next test for the TOMS will be in the first half of 2024, when HMRC is facing a similar appeal from Bolt’s rival Uber over the same issue.

I wanted to flag that Bolt’s ruling from the UK Tax Tribunal in their appeal against HMRC in relation to their application of the Tour Operator Margin Scheme (VAT Order 1987) is now live. This is the same case that Uber will fight in H1 2024. An Uber spokesperson said the company would not be commenting on the Bolt ruling as it was preparing its own litigation.