London taxi fares are set to rise after the federal government moved to shut a long-standing VAT loophole utilized by ride-hailing platforms, a call anticipated to lift round £700 million a yr for the Exchequer.
The change, introduced by Chancellor Rachel Reeves in November’s Funds, will hit firms resembling Uber and Bolt, which have beforehand used a tax scheme supposed for tour operators to cut back their VAT payments.
Ministers argue the transfer will degree the enjoying subject for London’s black cab drivers, whereas Uber has warned it’ll end in larger costs for passengers within the capital.
On the centre of the dispute is the tour operators’ margin scheme, which permits eligible companies to pay VAT solely on their revenue margin relatively than the complete worth of a service. Initially designed for vacation and coach tour firms, the scheme has additionally been utilized by ride-hailing platforms.
In line with the Treasury, this decreased the efficient VAT price paid by some operators to as little as 4%, in contrast with the usual 20% price. Below the brand new guidelines, suppliers of personal rent automobile and taxi companies might be excluded from the scheme.
The federal government has branded the transfer the top of an “illegitimate” tax benefit, whereas critics have dubbed it a brand new “taxi tax”.
The influence might be felt most sharply in London due to guidelines set by Transport for London, which require ride-hailing companies to behave because the principal in transactions relatively than as reserving brokers.
Outdoors the capital, Uber has moved to make clear that it operates as an agent, that means VAT is barely charged on the fee it earns, with drivers handled because the provider of transport companies. Most drivers fall under the VAT registration threshold, limiting general tax publicity.
That construction will not be permitted in London, leaving operators uncovered to VAT on the complete fare.
Reeves mentioned: “We’re placing the brakes on the illegitimate use of a distinct segment tax scheme to guard on a regular basis cabbies. The £700 million a yr this raises will assist us minimize the price of dwelling, minimize ready lists and minimize debt and borrowing.”
Steve McNamara, common secretary of the Licensed Taxi Drivers Affiliation, welcomed the change, calling it “a landmark step for equity and integrity”.
“For too lengthy, drivers and small operators paying the complete 20% VAT have needed to compete with on-line minicab companies benefiting from a distinct segment tax scheme,” he mentioned.
Uber, nonetheless, has warned the transfer may have unintended penalties. Andrew Brem, head of Uber UK, beforehand mentioned the change would “imply larger costs for passengers in London, and fewer work for drivers, at a time when individuals are already battling the price of dwelling”.
He additionally criticised the creation of a two-tier system, the place journeys in London are taxed in a different way from these elsewhere within the UK.
With fares anticipated to rise and political stress mounting on the price of dwelling, the closure of the VAT loophole is ready to grow to be one other flashpoint within the ongoing battle between authorities, gig-economy platforms and conventional taxi operators.
