WHA Head of Travel and Leisure Chris Photi looks at the impact of a key budget announcement
Of the numerous new taxes and tax rises (24 if you’re counting) introduced by Chancellor Rachel Reeves in her Autumn Budget, her comments about Uber raised some eyebrows.
Travel industry executives who book a ride home after a late-night event may have groaned at her declaration that Uber, Bolt and other taxi services will be subject to the standard 20% VAT from January 2nd, and are therefore expected to raise their prices.
But it may have slipped under the radar that this new rule will have a knock-on effect on some travel companies who use taxis or other modes of transport to provide transfers and trips for their customers.
The change means that private-hire taxi services will be excluded from the Tour Operators’ Margin Scheme (TOMS), which allows companies to pay a reduced VAT rate only on their profit, rather than the full fare. So, they will be subject to the full 20% rate.
It follows that if you’re a tour operator that uses certain transport services, VAT will be payable at 20% on the journey rather than on the margin of profit, although the VAT can be recovered against costs.
When does the new rule apply?
This really affects those who buy in a taxi or certain other transport service and sell it on, without making any material alteration when acting as a principal or undisclosed agent. Under the new rule, the sale will be outside TOMS and VAT will be due on the full selling price.
If you supply a journey in conjunction with accommodation or certain other passenger transport services, TOMS can still apply. However, you may suffer additional input tax on taxi costs because your suppliers must charge VAT, and you won’t be able to claim that back. Under TOMS, VAT is not recoverable on your direct costs.
If you act as an agent in the supply of a taxi journey or are a driver and supply a journey directly for a passenger, for example to someone who hails you in the street, there is no change because these situations have never been part of TOMS.
White Hart Associates are specialist accountants for the travel industry. Visit whitehartassociates.com or contact 0208 878 8383 for more information.
