HMRC’s recent consultation response on the VAT treatment of private hire services, published alongside the Budget, represents a significant development in the ongoing attempt to define VAT liability within the sector. However, while the response addresses the position of large ride-hailing platforms, it leaves unresolved — and in some respects unexamined — the position of many private hire operators operating under agency models across the UK.

Central to HMRC’s position is the removal of access to the Tour Operators’ Margin Scheme (TOMS) for ride-hailing platforms such as Uber and Bolt. This change reflects HMRC’s settled view that such operators function as principals in the supply of passenger transport and therefore cannot rely on a margin-based VAT regime designed for intermediaries.

The consultation also refers, albeit briefly, to the application of VAT to private hire fares in London following the Supreme Court’s decision in Uber BV v Aslam and the subsequent Uber v App Drivers & Couriers Union and Sefton MBC v Uber cases. However, the implications of these decisions for the wider private hire market are not fully addressed.

The Legal Context: Principal or Agent?

At the heart of the issue is the legal characterisation of the operator’s role: whether it acts as principal in the supply of transport or merely as an agent facilitating a contract between passenger and driver.

In Uber v Aslam, the Supreme Court held that Uber drivers were “workers” for employment law purposes. While the case did not directly determine VAT liability, it formed the basis for later regulatory and tax interpretations. The Sefton case went further, confirming that, for licensing purposes, the operator accepts the booking and therefore bears responsibility for the journey.

HMRC has now relied on these authorities to assert that VAT is chargeable on private hire fares in London. However, the extension of that conclusion beyond operators operating on an Uber-style model, is far from settled.

Crucially, neither Aslam nor Sefton addressed VAT law directly, nor did they consider the agency arrangements common among smaller operators, particularly outside Transport for London’s jurisdiction.

The Overlooked Majority: Agency-Based Operators

There are over 1,300 licensed private hire operators in London, many of whom (traditional minicab as opposed to chauffeur style operations) operate on an agency basis. These businesses typically:

• do not collect fares,
• do not employ drivers,
• and act solely as booking intermediaries.

In many cases, drivers are paid directly by passengers, frequently in cash. The operator’s income is limited to a booking fee, commission, or weekly rental paid by the driver.

HMRC’s consultation does not meaningfully address how VAT is intended to operate in these circumstances. In particular, it fails to explain:

• how VAT could be accounted for on fares never received by the operator.
• how VAT could be enforced on cash transactions outside the operator’s control.

These are not peripheral issues. They go to the core of whether VAT can lawfully and practically be applied to such models at all.

Cash Payments and the Practical Impossibility of Compliance

One of the most significant omissions in the consultation is the treatment of cash fares.

Where a driver accepts cash directly from a passenger, and the operator neither receives nor processes that payment, it is difficult to see how the operator could be said to be making a taxable supply of transport. VAT is, by its nature, a tax on consideration received. If no consideration is received by the operator, the legal basis for VAT liability becomes questionable.

Absent legislative change, HMRC would face considerable difficulty enforcing VAT collection in such circumstances. The consultation offers no guidance on record-keeping, apportionment, or liability in these scenarios, creating significant uncertainty for operators seeking to remain compliant.

Structural Consequences for the Industry

The practical effect of HMRC’s approach is likely to be market distortion.

Large platform operators with centralised payment systems, contractual control over drivers (worker status) and sophisticated tax infrastructure can adapt to VAT compliance. Smaller operators, particularly those operating on low margins in regional markets, may not.

There is a real risk that the current approach accelerates consolidation within the sector, effectively penalising independent operators while entrenching the dominance of multinational platforms.

Mitigation Strategies for Operators

In the absence of clearer statutory guidance, operators are increasingly exploring risk-mitigation strategies.

One option many seem to be considering is licensing outside Transport for London, (I cannot comment on the legitimacy of this) where local authority frameworks do not automatically characterise operators as principals.

Another approach mirrors some ride hailers  own post-litigation restructuring. Following adverse rulings, they seemingly amended their contractual arrangements to emphasise their  role as a booking agent, with drivers contracting directly with passengers and the ride hailer charging a service fee. Operators may adopt similar models. so that VAT should apply only to commission income, not the full fare.

Operators are also reviewing payment structures, contractual documentation, and booking terms to ensure alignment with agency principles and to reduce exposure to retrospective VAT claims.

Conclusion

HMRC’s consultation represents a significant shift in tone but stops short of providing the legal clarity the sector requires. By focusing on platform-based models, it fails to address the realities of the wider private hire industry, particularly the thousands of operators who act solely as intermediaries.

Without clearer guidance, the industry faces prolonged uncertainty, uneven enforcement, and increased risk of dispute. If the government’s objective is a fair and workable VAT regime, it must engage meaningfully with the full diversity of the private hire market — not just its largest participants.

Until then, we are left navigating a regulatory landscape shaped more by implication than by law.