What the Bolt VAT case means for digital platforms

The litigation involving Bolt Services UK Limited has become one of the most significant recent VAT cases for platform businesses. While the dispute concerned the VAT treatment of ride-hailing services and the application of the Tour Operators’ Margin Scheme (TOMS), its implications extend well beyond the transport sector.

Following the Court of Appeal’s decision in favour of HMRC, and the subsequent refusal by the Supreme Court to grant permission to appeal, the Court of Appeal’s judgment now stands as the leading authority on the application of TOMS to ride-hailing platforms in the UK.

Background

Bolt, the ride-hailing platform, argued that it could apply TOMS to its supplies of private hire vehicle services. Had this approach succeeded, VAT would have been accounted for only on Bolt’s commission or margin, rather than on the full fare charged to passengers

Although Bolt was initially successful before both the First-tier Tribunal and Upper Tribunal, the Court of Appeal overturned those decisions and found in favour of HMRC. The Court held that on-demand private hire journeys are not services of a type commonly supplied by travel agents or tour operators and therefore fall outside the scope of TOMS. As a result, VAT is due on the full value of fares charged to customers

The Supreme Court’s refusal to grant permission to appeal brings the litigation to an end and provides a greater degree of certainty regarding HMRC’s interpretation of the legislation.

More than just a travel case

Although the dispute centred on TOMS, the wider significance of the judgment lies in the Court’s approach to VAT classification and its analysis of modern platform business models

The Court emphasised that special VAT regimes should not be extended beyond their intended purpose simply because a business model shares some characteristics with sectors for which those regimes were originally developed. Instead, businesses must carefully analyse the nature of the supplies being made and whether they genuinely fall within the relevant legislative framework.

This principle is likely to have relevance far beyond the ride-hailing sector and may influence HMRC’s approach to other platform-based business models seeking to apply favourable VAT treatments.

Implications for digital platform businesses

Many platform businesses have evolved from acting as intermediaries to taking a far more active role in the supply chain. As these businesses grow, questions frequently arise as to whether they are acting as:

• An agent facilitating a supply made by another party
• A principal making the supply in their own right

The VAT consequences can be significant. Where a platform is regarded as acting as principal, VAT may become due on the full value charged to the customer rather than only on the platform’s commission or fee

The Bolt decision reinforces HMRC’s willingness to challenge structures where the commercial and contractual reality indicates that the platform is making supplies in its own name. Businesses will therefore need to ensure that contractual documentation, customer journeys, pricing models and operational arrangements consistently support their intended VAT position.

Sectors potentially affected

Although Bolt concerned ride-hailing services, the Court’s reasoning may be relevant to a much broader range of platform businesses, including:

• Online marketplaces
• Delivery platforms
• Accommodation and booking platforms
• Mobility and transport platforms
• On-demand service providers
• Other technology-enabled intermediary businesses.

Businesses operating in these sectors should consider whether their VAT treatment remains appropriate in light of the Court’s analysis.

Key takeaways following the supreme court decision

The conclusion of the litigation provides a number of important lessons for platform businesses:

• Commercial similarity to another sector will not, by itself, justify applying a favourable VAT regime
• The contractual position and economic reality of a transaction remain critical when determining the correct VAT treatment
• Businesses should regularly review whether they are acting as principal or agent
• Platform operators relying on margin-based VAT treatments may face increased HMRC scrutiny
• Historic VAT positions may warrant review where business models have evolved over time

The decision serves as a reminder that VAT outcomes will be determined by the precise nature of the supplies being made, rather than by how a business chooses to describe its role within the supply chain.

How Gravita can help

As HMRC continues to focus on platform-based business models, now may be an appropriate time for businesses to review their operating structures and VAT positions.

The Gravita VAT team can assist with:

• Principal and agent reviews
• Supply chain and contractual analysis
• Platform and marketplace VAT reviews
• Passenger transport and booking platform VAT advisory
• Business model restructuring
• HMRC enquiries and VAT disputes
• Reviews of historic VAT positions and risk assessments

If your business operates a digital platform, marketplace or technology-enabled service model, our specialists can help assess whether your VAT treatment remains robust in light of the Bolt decision and the evolving approach of HMRC and the courts.