Uber has seen a significant development in its UK tax position: while no court has ruled in its favour, HMRC has stopped demanding full VAT payment from the company and is allowing it to apply the Tour Operators’ Margin Scheme (TOMS) for now. TOMS is a specialist VAT framework originally designed for travel businesses. It allows companies to account for VAT solely on the profit margin of sales, rather than on the full price charged to customers.
In practical terms, this means Uber (and other app-based ride services) will only pay VAT on the portion of each fare it retains as commission—not on the total cost of the ride.
Background: VAT and Ride-Sharing Collide
VAT treatment for Uber and similar platforms has evolved significantly over recent years. Key developments include:
- Uber deemed a ‘principal’ (2021)
In a landmark 2021 ruling, the UK Supreme Court found that Uber drivers are workers, not self-employed contractors. This made Uber the principal for VAT purposes, responsible for VAT on fares. - VAT charged on all rides from 2022
Before this, many drivers operated under the VAT threshold and didn’t charge VAT. Following the 2021 ruling, Uber began charging 20% VAT on UK fares from March 2022. - Level playing field case (Uber v Sefton, 2023)
Uber successfully argued in the High Court that all private hire operators should be considered VAT principals. The court agreed that operators licenced under the 1976 rules should be taxed similarly. - Court of Appeal reverses ruling (2024)
In July 2024, the Court of Appeal overturned this decision, finding that the licensing regime doesn’t make every firm a principal automatically, reintroducing uncertainty over who is responsible for VAT. - TOMS challenge by HMRC (2023)
Meanwhile, Uber adopted a new approach, arguing that it should be taxed under TOMS. HMRC disagreed, issuing a VAT assessment reportedly worth £386 million, prompting Uber to appeal.
By 2024, Uber was charging VAT as a principal—but whether this should be on the full fare or just its margin was hotly contested.
Bolt’s Tribunal Case Sets a Precedent
Competitor Bolt led the legal challenge:
- First-tier Tribunal (2023)
Bolt argued its services qualified under TOMS and began charging VAT only on its margin. HMRC objected, but the tribunal sided with Bolt, finding that its service resembled that of tour operators or travel agents. - Upper Tribunal (March 2025)
HMRC appealed but lost again. The court upheld that TOMS applied to Bolt. It ruled that the on-demand nature of the rides did not disqualify them from being travel services, and that journeys to transport hubs like airports were “travel-related.” Thus, Bolt could apply TOMS and pay VAT only on its margin. - HMRC’s Response
HMRC expressed disappointment and is considering whether to appeal to a higher court. For now, it is not enforcing the “full VAT” approach against Uber, pending final legal outcomes.
The Bolt decision effectively paves the way for Uber and others to apply TOMS. Analysts say Uber could recover up to £1.3 billion in previously overpaid VAT.
Why This Matters: Impacts Across the Board
1. Lower VAT for Platforms
Platforms like Uber and Bolt can now significantly reduce VAT liabilities. Instead of 20% on the full fare, they may owe VAT on the margin.
2. Potential Tax Refunds
If the final decision upholds the TOMS approach, Uber and others may reclaim hundreds of millions in overpaid VAT.
3. Driver Treatment Unchanged
Drivers remain self-employed in tax terms and generally fall below the VAT threshold. Their income tax responsibilities are unchanged.
4. Private Hire Firms
Traditional firms that act as principals and control the passenger contract may now qualify for TOMS. This could remove Uber’s tax advantage and level the playing field.
5. Riders
Lower VAT may eventually reduce fares or slow future fare rises, though this depends on platform decisions and market competition.
International and Legal Context
TOMS originates in EU law, though the UK has retained it post-Brexit. Across the EU, TOMS is typically limited to tour operators—taxi firms don’t usually qualify. Thus, the UK’s acceptance of TOMS for ride-hailing is unusual and may influence thinking abroad. Still, tax rules vary widely, so this remains largely a UK-specific development for now.
What Comes Next
For Operators (Uber, Bolt, etc.)
Businesses should review their VAT procedures. Those matching Bolt’s model (acting as principal, providing travel services) may switch to TOMS immediately. Some may be eligible for VAT refunds.
For Drivers
No action required. Most remain unaffected by the change unless they surpass the VAT threshold individually.
For Traditional Firms
Now is the time to assess whether your business qualifies for TOMS. Firms may wish to consult a tax adviser.
For Consumers
Watch for potential fare reductions or promotional offers. VAT savings could result in better prices, though this will depend on platform strategy and competition.
For HMRC and the Government
Following a 2024 public consultation on VAT for private hire vehicles, HMRC may issue further guidance or legislation to clarify matters. For now, it has paused enforcement on full-fare VAT collection, pending final legal resolution.
Conclusion
Uber’s ability to apply the Tour Operators’ Margin Scheme signals a potentially pivotal shift in VAT treatment for ride-hailing services in the UK. Although no final court ruling has been issued, HMRC’s decision to stop demanding full-fare VAT suggests a meaningful change in approach that could save companies substantial sums. While there are no immediate operational changes for drivers or passengers, the use of margin-based VAT could eventually influence pricing strategies and reshape the competitive landscape. As the situation evolves, all stakeholders—operators, drivers, consumers, and regulators—would be wise to monitor the next steps closely.
- Bolt’s Court of Appeal Defeat: TOMS and What It Means for Ride-Hailing VAT - 23 June 2026
- Understanding the ‘Mansion Tax’ in Detail: A Clear Guide for Homeowners - 4 January 2026
- The Landmark Shift in Inheritance Tax Relief! - 24 December 2025
