From 2 January 2026, VAT will be due based on the full fare charged by PHV operators, rather than on the gross margin, increasing the tax due from those who operate a principal (buy/sell) model rather than an agency model.
Tour Operators Margin Scheme (TOMS) VAT rules require businesses operating as principal to calculate the VAT due based on the gross margin rather than full selling price and currently applies to businesses providing services of any kind commonly provided by tour operators for the benefit of travellers, e.g. bought in passenger transport.
Whether a PHV business acts as agent or principal is typically driven by the PHV regulatory regime, with recent court decisions impacting on the VAT treatment. The 2021 Supreme Court decision in Uber BV and others (Appellants) v Aslam and others (Respondents) confirmed that under the Greater London regulatory regime, operators must act as a principal (rather than an agent) and buy in the taxi ride from the independent driver and supply it on to the traveller.
Following that decision, many PHV operators (acting as principal) began accounting for VAT under TOMS on their supplies in the UK, and not just in Greater London. HMRC then challenged the use of TOMS and Bolt Services UK Ltd moved forward as the lead case. HMRC have now lost at both the First-tier Tribunal and the Upper Tribunal with an appeal hearing at the Court of Appeal scheduled for May 2026. In Autumn Budget 2025 the Government has pre-empted the outcome of this litigation for future periods, specifying that certain PHV supplies fall outside TOMS, so the ongoing litigation will only have retrospective impact - effectively moving the goalposts from 2 January 2026.
In a recent regulatory decision (D.E.L.T.A. Merseyside Limited and another (Respondents) v Uber Britannia Limited (Appellant) in connection with the regime outside of London the Supreme Court ruled that a PHV operator has the choice of acting as a principal or a disclosed agent.
As a disclosed agent the PHV operator would only be liable to account for VAT on its agency fee, which would be broadly equal to the margin for a similar business undertaken as principal under TOMS. The Government has confirmed that the 2 January 2026 VAT legislative change does not affect PHV operators acting in a disclosed agency capacity. This appears to open the possibility for PHV operators to implement an agency model outside London, alongside the principal model for Greater London. HMRC may challenge these arrangements if they are not properly implemented, so any change to the business model will need to be implemented in a very clear, consistent and robust way.
It might be that a fully implemented agency model outside of London, which is compliant from both a regulatory and VAT perspective, will be the end of the road. However, the EU is implementing its ‘VAT in the Digital Age’ package from January 2030, which will require platforms which facilitate ground passenger transport and short term accommodation to charge VAT on the full price paid by the customer (e.g. the full fare) where the underlying supplier is not VAT registered, regardless of agency status. While no similar rules have been announced in the UK, the UK Government may have a watchful eye on the new EU VAT regime in future.