Overview
The Supreme Court has 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.
The Case: Context and Background
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.
The Judgment: What the Supreme Court Decided
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 effectively means that:
- The existing operating model, in which the driver contracts directly with the passenger, can continue outside of London.
- The private hire operator is not automatically deemed the principal supplier in the transaction.
- Therefore, VAT is not automatically due on the full passenger fare by the operator.
VAT Implications: What This Means for You
This decision has clear and positive implications for private hire firms and platform-based operators outside of London:
- You can continue to operate using self-employed driver models without being forced into principal VAT liabilities on gross fare values.
- You avoid the cashflow and compliance burden of charging and remitting VAT on all passenger fares.
- The liability for VAT remains with the driver, where they are registered and subject to the threshold.
However, it’s important to remember:
- If your 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.
- HMRC continues to review the VAT treatment in the ride-hailing sector, so further changes could follow in the future
Contrast with London Operators
Operators in London remain subject to TfL’s contractual requirements, which were not overturned by this ruling. In London:
- The operator must enter into a contract with the passenger.
- This places VAT liability squarely on the operator, even if drivers are self-employed.
- Many operators have already adapted pricing models, VAT registration strategies, or changed fare structures to manage this shift.
What Should You Do Now?
If you’re a private hire operator outside of London, this decision should provide peace of mind but also a prompt to review your current arrangements, particularly:
- Contractual documentation
- VAT registration policies
- Driver agreements
- Fare collection methods
Our VAT & Indirect Tax team can assist you with a full review to ensure that your current business model remains VAT efficient, legally robust, and aligned with best practice.
Need Support or a Review?
If you’d like a second opinion on your contracts, driver terms, or VAT liabilities, or if you operate across both London and non-London markets, get in touch with our team. We can help you adapt confidently and avoid unexpected costs.
