In a significant development for the UK mobile ride-hailing industry, the Upper Tribunal (UT) has decided in favour of the taxpayer, Bolt Services UK Limited (Bolt), confirming the First-tier Tribunal’s (FTT) decision that the Tour Operators Margin Scheme (TOMS) applied to its services.
HM Revenue & Customs (HMRC) appealed against the earlier decision made by the FTT, arguing that certain ‘mobile ride-hailing’ services provided did not fall within the TOMs for the purposes of Value Added Tax (VAT).
The ruling in the Bolt case prompts a broader consideration of the application of the TOMS to modern service models. In a related case, Sonder Europe Ltd, which leases and lets serviced apartments, was ruled by the UT to be outside of the TOMS due to the material alteration of the bought-in services (turning longer-term leases into short-term holiday accommodation). These differing rulings underscore the complexity of applying the TOMS and serve as a reminder that, when purchasing services for resale to travellers, it is important to correctly determine eligibility under the scheme to fully benefit from potential VAT advantages.
Recap of The Tour Operators Margin Scheme
The Tour Operators Margin Scheme is a special VAT scheme that was designed for transactions carried out by travel agents who deal with customers in their own name and use supplies of goods or services, provided by other persons, in the provision of travel services.
Margin Scheme Supplies cover:
- Accommodation;
- Passenger Transport;
- Hire of a Means of Transport;
- Trips or Excursions;
- Services of Tour Guides and
- Use of Special Lounges at Airports.
The special scheme only applies to “bought-in” services: services which the taxpayer buys-in from other businesses as principal or undisclosed agent and provides as a part of its service to the traveller. In particular, the TOMS Order refers to a “designated travel service” as being a bought-in supply “supplied for the benefit of a traveller without material alteration or processing”.
When a taxpayer provides both bought-in services and its own services (referred to as “in-house services”) to a traveller, it is only the bought-in services that fall within the scheme.
It applies to anyone making the kind of supplies detailed above, even if this is not their main business activity or they do not view themselves as a traditional ‘travel agent’.
The TOMS could apply to:
- A hotelier who buys in coach passenger transport to collect its guests at the start and end of their stay;
- A coach operator who buys in hotel accommodation in order to put together a package; or
- A company that arranges conferences, including providing hotel accommodation for delegates.
How the scheme works
- If you are registered for VAT, you must normally account for tax on the full selling price of your supplies, but you can reclaim the VAT charged on purchases (subject to the normal rules).
- If your services fall under the TOMS, you only account for VAT on the difference between the amount you receive from your customer (including any amounts paid on behalf of your customer by third parties) and the amount you pay your suppliers. You cannot reclaim any VAT charged on the travel services and goods you buy in and resupply.
The specifics of the Bolt case
Bolt is part of the Bolt group of companies and the group provides a global mobility platform offering a range of services, including transport by private vehicle hire (PHV).
The services provided by Bolt are on-demand, PHV services, ordered and paid for through a smartphone application. Bolt also provides other services, including scheduled rides that can be booked in advance; however, the ruling was limited to their on-demand services.
- Bolt allocates the journey to a PHV driver – all bookings are in accordance with Bolt’s terms and conditions;
- Bolt contracts separately with both drivers and passengers and is responsible for all invoicing and remittance of payments; and
- The PHV drivers are independent contractors. They are free to provide PHV transport independently of the platform.
The FTT framed the key issues in the case as:
- Whether Bolt provided services of a kind commonly provided by tour operators or travel agents; and
- Whether Bolt supplied the services of the drivers to the passengers without material alteration or further processing.
The FTT ruling
On the first issue, the FTT found that the ride-hailing services provided by Bolt were services of a kind commonly provided by tour operators or travel agents and so capable of falling within the special scheme. It did so on the grounds that Bolt provided passenger transport services and at “a high level” those supplies corresponded with the kind of supplies made by tour operators and travel agents.
On the second issue, the FTT concluded that Bolt supplied the services of the drivers to the passengers without material alteration or further processing and so the ride-hailing services were TOMS supplies.
Grounds of appeal by HMRC
HMRC appealed the ruling on the grounds that the FTT:
- Incorrectly concluded that supplies that were not the same or similar to those of a tour operator or travel agent still fell within the TOMS on account of them being a form of passenger transport;
- Misinterpreted key features of Bolt’s mobile ride-hailing supplies;
- Incorrectly took the presence of multiple services as a separate basis for deciding that Bolt’s mobile ride-hailing supplies were covered by the TOMS; and
- Made a mistake in rejecting HMRC’s alternative position that Bolt’s mobile ride-hailing supplies were materially altered or ‘in-house’ supplies and should therefore fall outside the TOMS.
Upper Tribunal Decision
The Upper Tribunal held in favour of the taxpayer, affirming the FTT’s decision. Core principles discussed included:
- The correct touchstone is travel and a journey;
- The purposes and duration of the travel service are irrelevant;
- There is no requirement for a minimum distance of travel, or a cross-border element;
- There is no requirement for a travel service to be packaged with other supplies to fall within the special scheme; and
- The distinction between scheduled and on-demand rides, which is only a matter of timing, cannot be determinative of whether mobile ride-hailing services are services of a kind commonly provided by tour operators or travel agents and thus within the TOMS.
Key takeaways
This ruling carries important consequences for the ride-hailing industry:
- Bolt is now required to calculate VAT only on the margin – the difference between what passengers pay and what drivers receive – instead of on the full fare;
- The decision establishes a precedent that may affect how similar services across the sector are treated for VAT purposes; and
- Case law is establishing that the TOMs is not limited to traditional travel agents and tour operators – its scope is determined by the nature of the services supplied, rather than the status or classification of the supplier.
It is important to still consider the facts of each case, before assuming that this decision can be extended to all supplies of “passenger transport services”, in accordance with the highest-level approach adopted by the FTT.
HMRC has expressed disappointment with the outcome and is currently exploring potential legal avenues in response.
How M+A Partners can help
Businesses that buy in and resell travel, accommodation and certain other services as a principal or undisclosed agent should carefully review their VAT practices.
For any guidance on this matter, please get in touch with our expert below.
