VAT on PHV Fares: LPHCA Consultation Response

Steph FarrerNews, News 2024

8th August 2024

Thank you for providing the VAT Treatment of Private Hire Vehicles (PHVs) Consultation to enable knowledgeable industry trade representatives to respond to this very important matter.

The LPHCA

I submit this consultation response on behalf of the Licensed Private Hire Car Association (The LPHCA), a government-recognised trade body as its elected Chairman. The LPHCA has over 250 licensed Taxi and PHV operator members, whom either agency to, or employ, over 30,000 drivers and/or staff in the sector.

Consultation Engagement

The LPHCA position, which will be set out at the end of this submission, has followed meetings with officials at all levels within His Majesty's Revenue and Customs (HMRC), the Department for Transport (DfT) and His Majesty's Treasury (HM Treasury).

We have also engaged with licensing authorities, expert legal and tax advisors, and various other industry connected trade bodies. In addition, we have had open and public meetings, both on-line and in-person, with industry representatives, and we have also had meetings, both publicly and privately, with our membership.

Our first meeting took place in November 2022 where both members and industry legal and tax experts were present. During the consultation period, we wrote to over 4,000 licensed operators via Royal Mail and we emailed over 10,000 invites to operators and interested parties to attend our open and private consultation sessions.

On July 4th 2024 we held a public session at the London Heathrow Marriott Hotel, which over 300 attended. An overview of the VAT consultation and situation was given by industry tax expert Gary Jacobs of Eazitax. Gary is the LPHCA’s industry tax advisor, and someone, alongside myself, who directly assisted HMRC with the successful delivery of ‘Conditionality’, firstly in England and Wales and subsequently last year in Scotland.

Our position on VAT at the end of this response was proposed, seconded and agreed, unanimously, at our private AGM held on the same day in the London Heathrow Marriott Hotel.

About this Consultation

We are pleased that the subject of this consultation in section 1.1 sets out clearly the objective of clarifying recent High Court judgements; however, as you will be aware, it is out of sync with the most recent judgement, which makes for even more confusion.

We are also pleased that the consultation in section 1.2 also invites views on potential government interventions that could help to mitigate any undue adverse effects that these judgments could have on the PHV sector and its passengers.

We believe that there will be considerable negative regulatory impacts for all if the current VAT regimes and methods that are now in place are changed.

We are also pleased that the consultation in section 1.5 that HM Treasury, HMRC, and the DfT also value the input of stakeholders and interested parties on this important issue. Furthermore, we believe that the involvement and opinions of the three primary government stakeholders are essential to this process.

Chapter 3 – About You (Us)

Question 1: In what capacity are you responding (e.g. a PHVO, a driver, a consumer, a representative body etc.)?
RESPONSE: We have set out above details about us as an industry trade body.

You subsequently ask: If you are a trade representative body, the government would welcome any aggregated responses to the above questions (not shown here) that you are able to provide on behalf of your members.
RESPONSE: With respect this would be a very difficult task, as we are not responding as operators or consumers. Such data would change daily and take months, possibly years, of expensive research to undertake. As a trade body, you are asking us to provide data that may (a) be commercially sensitive and (b) be protected under GDPR. It is therefore beyond our means to provide this.

Chapter 4 – Understanding the Potential Impacts of the Judgments
  • In order to consider effective policy options, it is important that the government fully understands the potential impacts of the 2023 High Court judgment, and the impacts that the 2021 High Court judgment has already had in London, on the PHV sector – including on passengers, PHVOs, and drivers.
  • It is difficult to predict with any certainty whether these court cases will have an impact on fare prices, PHVOs’ profits, or drivers’ earnings. Owing to the diversity of PHVO business models across the market, the effects of these court judgments will not be felt uniformly.
  • For instance, the government is aware that some PHVOs already act as principal on all journeys, and account for VAT accordingly. Indeed, in response to the 2021 High Court judgment, since April 2022, Transport for London has required all PHVOs that it licenses to contract with passengers as principal for every booking that they accept. The government is aware that some PHVOs changed their UK-wide business model as a result of this update to their licensing
  • However, as stated in the introduction, the vast majority of PHVOs are licensed out of area, therefore a significant portion of PHVOs by volume are likely to still be accounting for VAT as agent on most, or at least some, bookings.
  • The government is aware that some PHVOs are accounting for VAT as principal, but under the Tour Operators’ Margin Scheme (TOMS). It is important to note that the government’s position continues to be that TOMS does not apply to the PHV sector. As such, HMRC will challenge PHVOs that account for VAT under TOMS, which was not designed to be used by this sector.
  • Internal analysis suggests that the following impacts could be felt by the one-third of the PHV market still currently operating under the agency model. These impacts would only be felt in England and Wales, as the High Court judgments did not impact NI and Scotland:
    • It is estimated that the increase in fares could work out to be around 1.25% to 2.5% across the whole market, when averaged with the other segments of the PHV and taxi market where the impact (beyond that which has already occurred) would be nil. For the average passenger, the government expects this to equate to an increase in fares of only around £2.70 to £5.60 per year.
    • Any reduction in journeys will depend on the demand for PHV services, but, as an illustration, could be expected to be around 1.25% to 2.5%. Again, this is expressed as an average across the whole market, including the segment that has already moved to principal and taxis, which will not be impacted.
    • The above range estimates may differ from industry analysis, as they take into account the fact that the impacts could be mitigated by drivers voluntarily registering for VAT, possibly also using the VAT Flat Rate. This would enable drivers to recover the VAT on a vehicle purchased as a capital item as well as apply a lower rate of VAT on their sales, whilst operators would be able to recover VAT charged to them by drivers at the full rate. Overall, this could reduce the net additional VAT by close to one half, substantially mitigating any impact of the court judgments.
  • To refine this analysis, the government would like to gather further evidence from respondents to better understand who uses PHVs and their purposes for using them.

RESPONSE: Once again this would be a very difficult task, as we are not responding as operators or consumers. Such data would change daily and take months, possibly years, of expensive research to undertake. As a trade body, you are asking us to provide data that may (a) be commercially sensitive and (b) be protected under GDPR. It is therefore beyond our means to provide this. Furthermore, it is our reasoning that these complex requests may inadvertently lead to a low number of responses.

Question 2: What are your views on this analysis and the assumptions underpinning it? Where respondents disagree, the government would be grateful if you could please provide details of why you disagree and/or alternative analysis.
RESPONSE: We believe some of the figures quoted and presumptions are extremely spurious and we would like to understand how they have been arrived at and substantiated, as such figures would depend on how businesses are set up and have been lawfully trading for many years.

The Courts did not rule on VAT, but just confirmed what we already knew was common contract law. This is a position HMRC have been happy to accept for many years, and most recently outlined in How VAT Applies to Taxis and Private Hire Cars (VAT Notice 700/25), 19th September 2016.

We argue that it has always been the case (as set out in the above VAT guidance and in good practice) that an operator can be principal for the acceptance of the booking to provide the journey, however the TfL regulation states with the person making the booking.

Such regulation is very complex and we believe, at best, confusing because the person making the booking is often (a) not the person travelling, and/or (b) not the person or entity paying for the booking. The requirements as set out are, therefore, probably subject to other legal wording and commonsense flaws.

An example would be a receptionist, bar-person or company employee making a booking. The person actually paying may never be the person making the booking and where does this all sit with electronic bookings?

We therefore contend that the payment arrangements lie outside of the booking contract and can be conducted via a separate arrangement quite lawfully within the operator agency and principal arrangements as set out in the very helpful 2016 (VAT Notice 700/25).

After Question 3 you subsequently ask: if you are a PHVO representative body, the government would welcome any aggregated responses to the above questions that you are able to provide on behalf of your members.
RESPONSE: As per previous answers: with respect this would be a very difficult task, as we are not responding as operators or consumers. Such data would change daily and take months, possibly years, of expensive research to undertake. As a trade body, you are asking us to provide data that may (a) be commercially sensitive and (b) be protected under GDPR. It is therefore beyond our means to provide this.

Question 4: In what ways do you expect the 2023 High Court judgment to impact you (if you are a consumer or PHV driver), or your business (if you are a PHVO)?

Question 5: How has the 2021 High Court judgment concerning London impacted you (if you are a consumer using London-based PHVOs, or a PHV driver working for a London-based PHVO), or your business (if you are a PHVO operating in London)?

Question 6: If you are a PHVO, have you made any changes to your business model and the way in which you account for VAT since either the 2021 and/or 2023 High Court judgments? If so, please provide details.

RESPONSE: These questions (questions 4, 5 and six above) are not aimed at, or answerable, as a PHV operator’s trade body.

Chapter 5 – Objectives of Government Intervention
  • The government has considered a number of different potential interventions to help limit the aforementioned negative impacts on PHVOs, drivers, and passengers as far as possible.
  • When developing and assessing potential interventions, the government has primarily evaluated options against the following objectives:
    • Supports vulnerable consumers who rely on PHV services, and maintains high standards of passenger safety/consumer protections
    • Cost effective and ensures good value for taxpayers’ money
    • Promotes fair competition in the PHV sector
  • The government has also considered the following objectives when developing and assessing potential interventions:
    • Low non-compliance risk
    • Easy to administer for both taxpayers and HMRC

Question 7: Do you agree that these are the right objectives for the government to be assessing options against? Are there any other objectives you think the government should be considering?

  • Supporting vulnerable consumers who rely on PHV services, and maintaining high standards of passenger safety/consumer protections, being cost effective and ensuring good value for taxpayers’ money and promoting fair competition in the PHV sector. RESPONSE: Maintaining the 2016 guidance position is the way to do this.
  • Low non-compliance risk. RESPONSE: By maintaining the 2016 guidance position there is no risk or overhead.
  • Easy to administer for both taxpayers and HMRC. RESPONSE: By maintaining the 2016 guidance position, there is no additional administration.  However, any move to change the VAT requirements for those collecting the fares who are below the VAT threshold will be a potential nightmare to administer, manage and enforce.  The overhead on operators, drivers and HMRC will be considerable and costly.
Chapter 6 – Changing Legislation
  • In order to avoid VAT at the standard rate being charged on all PHV fares, the government could amend either transport legislation or VAT legislation. Whilst the government is consulting on this issue, PHVOs and drivers can rely on existing HMRC guidance, which allows PHVOs to continue to account for VAT as agent if that is how their business is structured. RESPONSE: It would make sense to amend transport legislation if necessary.
  • It is worth noting that many PHVOs (around two-thirds by market value, rather than total number of PHVOs) are already accounting for VAT as principal on all bookings. The shift in PHVOs accounting for VAT as principal started after the 2021 High Court judgment and has steadily increased Despite this, there has not been a material real terms increase in passenger fares since the 2021 High Court judgment. RESPONSE: This is extremely misleading, as we know that the operating models of some of those with very high-value market share are often very different from thousands of smaller businesses that serve rural areas, with the elderly and the vulnerable as their primary customer base.  Such businesses work on a cash or credit card transaction basis, with passengers' fares payable directly to their driver. Some of the above has been because some of those with high-value market share were allegedly collecting all the money, but not accounting for it correctly.  We understand that HMRC has sought significant sums from those alleged to have mis-accounted for VAT.
  • As the VAT revenue raised from these PHVOs accounting for VAT as principal is now incorporated in the public finances, changing VAT or transport legislation to revert to the position prior to the court judgments would not be fiscally neutral. Indeed, changing either VAT legislation or transport legislation to enable PHVOs to transition back to acting as agent would be expected to cost the Exchequer around £750 million per year. RESPONSE: the figure of £750 million per year, we contend, is extremely inaccurate because we feel much of this figure is down to alleged not accounting for tax appropriately and is therefore not new revenue. A further consideration is the dire potential regulatory impact this could have on service levels and the significant cost in time and money for small businesses with below-the-threshold drivers needing to manage VAT, money transfers and its associated administration. This would very likely reduce driver numbers at a time when demand is increasing.
  • It is also worth noting that, as transport policy is devolved, any changes made to taxi and PHV legislation would affect England only unless the Welsh Government consented to the changes being enacted in Wales As tax policy is reserved, any changes made to the VAT Act would impact the whole of the UK. RESPONSE: The High Court has reversed the Sefton Ruling during the latter end of this consultation so different VAT regimes could happen locally, regionally and nationally, which is a very good reason to hold further trade discussions and consultation.
Amending transport legislation
  • The UK Government has committed to introducing legislation to improve the regulation of the PHV and taxi sector in England when Parliamentary time Consideration has been given as to whether, as part of this reform, amendments could be made to PHV legislation in England so that the contract is between the driver and the passenger, rather than the PHVO and the passenger.
  • The government’s view is that simply removing the reference to the term “contract” in the 1976 Act would require consequential amendments to other parts of the Act that are predicated on this position. Importantly, the London legislation does not include a clear provision on the contract being with the Therefore, London PHVOs would continue to be required to be principal in a contract, potentially leading to unfair competition within the PHV sector in England. This demonstrates the difficulty in identifying changes to the legislation that would make clear that the contract is between the passenger and the driver, rather than the PHVO, as the London legislation does not specify the contract is with the PHVO.
  • The government considers that maintaining the requirement for a PHV service to be booked through a licensed operator may not enable sufficient change from the current position that the contract is between the operator and the Under the PHV legislation, an operator is fundamental to the booking of a PHV, and therefore plays a distinct and legally necessary role in the regulatory system. Removing the requirement for bookings to be made with an operator would be a fundamental change and would have implications for the taxi sector as well.
  • The only way to put beyond doubt that a PHV driver can contract with a passenger would appear to be to remove the role of licensed operators, which would effectively replicate the current taxi licensing structure. Those previously licensed as PHVOs would take on the role of intermediaries, as is currently the situation for pre-booked taxis.
  • In the Law Commission’s 2014 report, following its extensive review of the legal framework for taxis and PHVs, it consulted in detail on fundamental reform. It considered the two-tier system of taxis and PHVs and whether it should be retained, or moved to a one-tier system (i.e. a single category of vehicles that ply for hire and take pre-bookings). The final report concluded that the two-tier system should be retained, as:

    “this structure promotes consumer choice and the provision of a wide range of services. Furthermore, the different ways in which taxis and private hire vehicles are engaged make different levels of regulation appropriate, so that a single system would lead to over or under-regulation.”

  • If the only way to enable a PHV driver to contract directly with the passenger is to move to a single-tier system, decisions would then need to be taken on whether the single-tier system was based on the current taxi standards, including regulated fares, or the PHV Whatever the approach taken, as the Law Commission identified, it would reduce consumer choice.
  • If the generally higher taxi requirements approach was chosen, this is likely to result in a significant reduction in the availability of licensed drivers and vehicles, as PHV drivers that did not re-license as a taxi driver would no longer be able to work in the trade This would likely lead to an increase in the unlicensed market to meet unmet demand, thereby significantly undermining public safety.
  • Not only could this have implications on public safety, but licensing authorities would lose the revenue received from PHVOs, as they would no longer be required to be This is expected to result in higher licensing fees, as the fixed costs of administering the licensing regime (e.g. office space and utilities) would need to be recovered from a smaller number of licences (driver and vehicle licences only).
  • The Law Commission concluded that, under a two-tier system, licensed PHVOs are a necessary element of the regulation of PHVs. Whilst it suggested that operator licensing should only cover dispatch functions, and no longer apply to the invitation or acceptance of bookings, it would still have been illegal for a PHV driver to accept a job directly from passengers. The government considers this unlikely to change the current contractual position.
  • The government’s view is therefore that the two-tier system of taxis and PHVs remains the best approach to ensuring the sector can deliver a range of safe, accessible, affordable, and available services that meet the differing needs of passengers, and to thus maintain the high standards of passenger safety and consumer protections this provides. Furthermore, the government has not been able to identify a clear way to amend PHV legislation so that PHVO drivers could contract with passengers as principal without resulting in a single-tier
  • Moreover, as stated above, enabling drivers to contract with passengers as principal on all their work would be estimated to cost the Exchequer around £750 million per annum.

Question 8: What are your views on amending PHV, and potentially taxi, legislation in England to allow drivers, rather than PHVOs, to contract with passengers?
RESPONSE: We have stated above that it would make sense to amend transport legislation (if necessary), and that was accepted as our mandate at our AGM.

We are very concerned that this whole subject is being made over-complex with vested interests, including the so-called ‘regulatory disrupters’, vying for commercial gain and competitive advantage rather than serving the needs of the ‘traditionally VAT compliant’ PHV operators and drivers, as well as the travelling public who are dependent on PHV services.

We agree with the Law Commission and the government-commissioned Task and Finish Group's recommendations that rejected outright a single-tier system. You appear to have come to the same conclusion.

We know that prior to the court hearings, the VAT system worked well for so-called account work or other work paid directly to PHV operators where VAT should be applied when the VAT threshold has been reached. For so-called cash work, paid directly to PHV drivers, the same applies but the majority of drivers are well below the VAT threshold.

The contract for the provision of the booking has always been with operators, nothing changed in the court hearings.  PHV regulation has got caught up in wording used in the hearings, and we assert that the tax position could remain the same.

It makes absolute sense that the entity that is paid accounts for any tax due, and that will be the PHV operator or driver.  We suggest minor wording changes to PHV regulations could deal with this in conjunction with appropriate terms and conditions.

The operator would remain in a contract for the booking (as principal for the booking) with the entity paid (the driver or the operator) as principal for payment.  Work could continue to be passed to drivers under the same or similar agency agreement that is in place now.

It should be pointed out that there is no reference to self-employed drivers throughout the consultation and majoritively PHV drivers are so.

Question 9: Do you think this option meets the objectives outlined in Chapter 5? Please provide details.
RESPONSE: Yes, but see the above response to question 8.

Question 10: Are you able to articulate a way in which PHV, and potentially taxi, legislation in England could be amended so that PHV drivers could contract with passengers as principal, but that did not result in a single-tier system? Please provide details.
RESPONSE: Yes, but see the above response to question 8.

Question 11: If the UK Government was to amend PHV legislation in England to enable PHV drivers to contract with passengers, what impacts do you think this would have on the trade and passengers, particularly those with protected characteristics?
RESPONSE: For fares paid directly to the driver, the passenger, not the booker, should be in a contract for payment, including waiting time and gratuities. We believe simple clarity or minor wording changes would achieve this, possibly within terms and conditions.

Question 12: Do you think, in order to prevent passengers having to pay VAT on the full fare in England, the taxi and PHV sector should move to a single-tier system? Please provide details.
RESPONSE: Absolutely not, given what was stated previously. This would be both foolish and irresponsible, with a multitude of negative consequences.

 Amending VAT legislation
  • Alternatively, the VAT Act could be amended to allow PHVOs to account for VAT as though they were agents for tax purposes, but act as principal for services to passengers.
  • Taking this approach would safeguard the passenger safety benefits and consumer protections that PHVOs acting as principal affords passengers, but prevent the associated need for VAT at the standard rate to be applied to allpassenger fares, thereby supporting vulnerable consumers who may otherwise be impacted by fare increases. Taking this approach would also promote fair competition within the PHV sector, as it would ensure that all PHVOs accounted for VAT in the same way on all of their bookings.
  • However, deeming PHVOs to be agents for tax purposes would go further than simply overturning the effects of the recent court judgments. Indeed, it would effectively represent a tax relief on supplies unaffected by the judgments, because it would allow PHVOs to account for VAT as agent on all of their work – including where they have always accounted for VAT as principal.
  • It is also worth noting that taking this approach would entail creating in VAT legislation a legal fiction, thus introducing an exception to the fundamental principle that the VAT treatment of a given good or service is determined by the economic reality and the contractual arrangements in place. VAT is a very litigious tax, and this is an important principle that HMRC often rely on in litigation to safeguard billions of pounds in Exchequer revenue.
  • There is precedent elsewhere in the VAT system for introducing legal fictions. However, such exceptions were introduced to tackle specific and significant compliance For instance, when goods and digital services are supplied through an online platform, the platform is deemed to be the supplier. These deeming provisions were introduced to tackle widespread non-compliance (typically from overseas sellers) and to make it easier for HMRC to collect tax that was already legally due. They also act as a simplification for small overseas businesses, as it prevents the need for them to have to register for VAT in the UK.
  • These issues do not apply to PHVOs, as most are based in the UK, and there is no widespread non-compliance in the sector that would justify introducing an exception to the ordinary rules of
  • Furthermore, legal fictions need to be used judiciously, as they can cause uncertainty and therefore invite unintended consequences that can be costly for both HMRC and This is because it is not always possible to pre-empt all potential interactions with existing legislation, often leading to lengthy litigation, which can go as far as the Supreme Court. Indeed, courts have often struggled with legal fictions – particularly the parameters of those fictions, and what characteristics or factual circumstances should be incorporated into that fiction. Taking this approach would not necessarily, therefore, provide the sector with the clarity they are calling for.

Question 13: Who do you think would benefit from amending the VAT Act to allow PHVOs to account for VAT as though they were agents for tax purposes, but act as principal for services to passengers?
RESPONSE: We are not sure that the VAT Act would need to be changed but, as stated above, minor amendments to PHV legislation and possibly the VAT Act could provide a simple solution and much-needed clarity.

Question 14: Are there any other potential unintended consequences of this approach that are not outlined above? Please provide details.
RESPONSE: We do not see any unintended consequences and would expect the 2016 rules to continue, whereby VAT is collected and accounted for by the entity that is being paid for the service provided.  This could enable radio rents, circuit fees, commission-based charges and all the current rules to prevail as usual.

Question 15: Do you think this option meets the objectives outlined in Chapter 5? Please provide details.
RESPONSE: Yes

Chapter 7 Mitigation Options
Changing the VAT treatment of PHV services
  • Alternatively, the government could instead seek to mitigate any impacts of the court judgments on PHVOs, drivers, and PHV passengers – particularly those who rely on PHV services more heavily. This chapter invites comments on the options that the government has identified, and welcomes any other potential interventions that stakeholders would like to propose.
  • The government has considered changing the VAT treatment of PHV services. Subjecting PHV services to the reduced rate of VAT (5%) would be expected to cost the Exchequer around £1 billion per year. Zero rating PHV services would be expected to cost the Exchequer around £1.5 billion per year. This high cost reflects the fact that these options would go further than reversing the judgment, as they would also remove or reduce the VAT paid on drivers’ agency fees, which have always been subject to the standard rate of VAT. Taking this approach could also encourage currently unregistered PHV drivers to register for VAT in order to recover VAT on their purchases, without having to charge VAT on their services.
  • As with all VAT reliefs, however, there is no guarantee that this tax cut would be passed on to passengers in the form of lower prices. It is also worth noting that VAT is the UK’s third largest tax forecast to raise £176 billion in 2024/25, helping to fund key public services, such as the NHS, education, and defence. Any reduction in tax paid is a reduction in money available to fund these important services.
  • Alternatively, the government could introduce a new margin scheme specifically for the PHV sector that would allow PHVOs to account for VAT on the margin between the passenger fare and the driver’s commission This would allow TOMS to remain targeted at tour operators as intended (thereby limiting the risk of boundary pushing), whilst recognising the potential benefits of a margin scheme for the PHV sector as an administrative way to reduce their VAT liability on PHVO supplies.
  • A margin scheme would prevent PHVOs from claiming back any input VAT they pay on the services they buy in and resupply to passengers. However, it would limit the effective rate of VAT to c.4-5% of the full fare, as opposed to the standard 20% rate of VAT on the full passenger fare.
  • A new margin scheme would avoid the disadvantages associated with TOMS, which is mandatory and involves an official 39-step (or more in some cases) calculation because of the need to overcome the complexities involved in tour operators making supplies of bundled services. A new margin scheme could therefore have the benefit of being designed specifically for PHVOs, have a much simpler calculation, and could be optional.
  • It is worth noting, though, that the introduction of a new margin scheme may result in an increased administrative burden for PHVOs, as they would need to adapt accounting and business processes to accommodate a new This admin burden will likely be felt more acutely by smaller PHVOs.
  • A new margin scheme would have a similar fiscal impact to changing legislation, as it would also allow PHVOs to apply a margin scheme to its account work, which is unaffected by the judgment; therefore, implementing a new margin scheme for the PHV sector would be estimated to cost the Exchequer around £750 million per year.

Question 16: What are your views on these VAT options?
RESPONSE: None of the above options seem viable or necessary.

Question 17: Do you think a margin scheme meets the objectives outlined in Chapter 5? Please provide details.
RESPONSE: No

Question 18: Are there any other potential benefits of a margin scheme that are not outlined above?
RESPONSE: Not to our knowledge.

Question 19: Are there any other potential unintended consequences of a margin scheme that are not outlined above?
RESPONSE: Possibly, however we do not believe that wholesale changes to the VAT system are necessary to protect HMRC revenue, PHV operators and the travelling public.

Targeted interventions for consumers
  • Alternatively, the government could explore broader options in the transport space that are targeted at supporting the more vulnerable
  • For instance, to help those living in rural areas with fewer transport options, the government could legislate to zero rate demand responsive transport (DRT) services for VAT purposes, which is expected to cost the Exchequer in the low millions of pounds per year. DRT is a form of public transport where small vehicles (generally minibuses or people carriers) are dispatched on an ad hoc basis in response to They do not operate to a fixed timetable and their route will vary depending on pick-up and drop-off locations. DRT can complement fixed-route public transport services and improve mobility in low-density areas and at low-demand times of the day.
  • The government could also explore broadening existing transport schemes that have been designed to support more vulnerable consumers. Examples of such schemes include:
    • Disabled Person’s Bus Pass Eligible disabled people qualify for a bus pass that entitles them to free bus travel at certain times of the day. Additional funding could go towards widening the scope of disabilities that qualify for this bus pass.
    • Bus Service Operators Grant (BSOG)The BSOG is a grant paid to operators of eligible bus services and community transport organisations to help them cover some of their operating costs.
    • Community Transport Provision Local government and charities provide alternative travel support for vulnerable groups through community transport schemes such as DRT, Dial-a-Ride, Shopmobility, door-to-door minibuses, taxi provision to and from school, and community group car Additional funding could be provided to local authorities to support these existing transport provisions.

Question 20: What are your views on these targeted interventions for consumers? Who do you think this sort of intervention would benefit?
RESPONSE: We do not think such interventions are necessary and there are far simpler measures that could be put in place.

Question 21: Are there any other views or comments you would like to provide that have not been covered in your responses to other questions?
RESPONSE: We believe that there would be many unintended negative consequences in moving away from the current guidance model set out in How VAT Applies to Taxis and Private Hire Cars (VAT Notice 700/25), 19th September 2016.

As we reference above, there are many presumptions on figures and in other areas that, as a long-standing and close to the industry trade body, we are struggling to reconcile as accurate.  It is very difficult to look into our industry and gain a measured insight because of the sheer number of operators and the diversity of customer base and operating models.

We have grave reservations on the scale of the regulatory impact that changing the current VAT regime will have. We do believe it will damage the supply of PHVs and cause extreme inconsistencies, locally, regionally and nationally. All this will happen within private hire but not within its direct competition in the licensed taxi sector.

We know that private hire is generally the cheapest form of bookable small-vehicle passenger transport.  We also know that primary users are the elderly, special needs, the disabled, the vulnerable and non-car owners. Private hire services are often the only genuine 24-hour pre-bookable door-to-door passenger transport mode, and a 20% fare increase will impact service levels and supply, with far-reaching consequences for public safety.

A few of the questions to be answered are:

  • What is the impact when a company runs both taxis and PHVs?
  • What would the VAT implication be if a booker books with Company A who subcontracts to Company B that utilises Driver C, who could be employed or self-employed?  If driver C is being paid by the passenger and has to charge VAT when he or she is beneath the VAT threshold, where should that VAT go and how will the money get there?
  • If Driver C is VAT registered, where does that leave everything?
  • Finally in all these scenarios, who issues a VAT receipt if the passenger requests one?
SUMMARY

It is our contention that a way should be found to preserve the Agency and Principal relationships that currently exist. We also believe changing the basis of private hire VAT to make self-employed drivers become tax collectors for someone they agency to is a flawed concept, fraught with bureaucracy and serious management issues. The negative impact of such changes will be widespread and, alongside others in the industry, with respect, we struggle to identify with many of the financial forecasts within the consultancy.

We also believe that there needs to be far more dialogue and consultation with recognised trade associations like the LPHCA, not least because Court Proceedings are ongoing; furthermore, they could be subject to even more appeals and decisions.

We thank you for giving us the opportunity to respond.

Yours sincerely,

Steve Wright MBE, Chair LPHCA