Rival taxi operators to Uber will not have to pay 20 per cent VAT on their profits outside London following a landmark Supreme Court ruling.

The court has decided that private-hire operators do not enter into a contract with passengers and therefore are except from the tax.

The ruling comes after US giant Uber brought the case following a Supreme Court decision in 2021 which ruled that its drivers were workers. That decision impacted Uber’s tax and other obligations in the UK.

The High Court in London ruled in its favour in 2023 after Uber sought a declaration that private-hire taxi operators enter into a contract with passengers.

However, the decision, which meant that operators would have to pay VAT at 20 per cent, was reversed by the Court of Appeal in July 2024 after being challenged by private hire operators Delta Taxis and the platform Veezu. Uber then appealed to the Supreme Court.

In a separate case earlier this year, Estonian ride-hailing and food delivery startup Bolt defeated an appeal by the UK tax authority HMRC on what it has pay VAT on at 20 per cent.

Since then, HMRC has been granted permission to challenge the ruling.

An Uber spokesperson said: “The Supreme Court ruling confirms that different contractual protections apply for people booking trips in London compared to the rest of England and Wales.

“The ruling has no impact on Uber’s application of VAT, which has been upheld twice by other courts.”

Uber ruling ‘a monumental decision’

Layla Barke Jones, dispute resolution partner at Aaron & Partners, said: “This is a monumental decision, not just for Delta, but for all private hire taxi drivers and operators across England and Wales. 

“Had this gone the other way, the cost and complexity of implementing VAT systems would have pushed many firms to the brink. 

“This ruling ensures that operators can continue to operate under established, regulated models that have been in existence since regulation was introduced almost half a century ago – such as the agency model without being forced into a ‘one size fits all’ model.” 

She added: “Private hire firms are vital in the communities, and are used frequently by those with disabilities, low-income households and older people who rely on taxis for essential journeys and to maintain their independence.  

“If VAT suddenly had to be paid by all those people, theadditional cost would have meant many simply choose not to travel at all, leaving some of the most vulnerable people in our society isolated.