TOMS: The journey continues

Kevin Hall and Priyam Sharma explain why the Upper Tribunal’s decision in Bolt has caused more confusion on the operation of TOMS.

On 24 March 2025, in the VAT case of CRC v Bolt Services UK Limited [2025] UKUT 00100 (TCC), the

Upper Tribunal (UT) decided in favour of the taxpayer, affirming the decision of the First-tier Tribunal (FTT) that the tour operators’ margin scheme (TOMS) applied.

This decision follows the UT’s January 2025 ruling in Sonder Europe Ltd which, in finding against Sonder

(overturning the FTT decision), concluded that TOMS did not apply to Sonder’s supplies (see our article ‘TOMS in distress’, Taxation 27 February 2025). The taxpayer has appealed.

In this article, we will analyse the UT’s decision in Bolt and compare it with the UT’s contrasting decision in Sonder.

Time for TOMS

UK VAT legislation was written to implement the requirements and meaning of the EU Principal VAT Directive 2006/112/EC (see Box 1). The UK VAT legislation (Box 2) applies different wording; and HMRC applies this wording narrowly. The concern is whether HMRC’s application is too narrow.

In Bolt, the UT took a ‘high-level’ approach and decided that the ride-hailing taxi services provided by Bolt are comparable to travel agents who book/reserve car rides. After considering the additional services provided by Bolt (e.g. on-demand nature of the rides, reservation and payment), the UT decided that

these elements were also commonly provided by travel agents and that the services of the drivers are not subsumed within a wider ‘in-house supply’ made by Bolt. In particular, the services of the drivers in conveying the passenger from A to B were ‘not materially altered so that what the customer receives is fundamentally different from the services that the driver provides’ (paragraph 110). TOMS therefore applied.

This distinction is valuable for taxpayers who supply travel facilities but do not recover VAT on their purchases or are required to register for VAT overseas. Where businesses that do not recover VAT on their purchases have been denied TOMS, they are likely to be paying VAT liabilities which could later be found to be significantly overstated. Such taxpayers should consider appealing HMRC’s rejection of TOMS in order to protect any claims from the ‘four-year cap’.

Re-tracing the law on TOMS

In order to understand the UT’s decision in Bolt, the UK and EU legislative background of TOMS is helpful. We set out important legal extracts in Boxes 1 and 2, as we did in our recent Sonder article.

The EU PVD applies TOMS to suppliers who ‘use supplies of goods and services provided by other taxable persons, in the provision of travel facilities’ (Article 306).

The UK legislation (Box 2) applies TOMS where purchases are ‘supplied for the benefit of a traveller without material alteration or further processing’.

When interpreting the UK legislation, the UK tribunals and courts look to ‘construe the [UK legislation] in so far as possible to conform with the requirements of the [PVD]’ (paragraph 15, Bolt UT).

The purpose of TOMS is as a simplification measure that creates a single supply and single place of supply in the country of the supplier’s establishment, eliminating the requirement to register for VAT in multiple jurisdictions. No recovery of input tax is permitted, avoiding the costly recovery of non-UK VAT on costs, and the loss of input tax recovery is mitigated by the fact that output tax applies only within the margin between sales and purchases (i.e. the value added; paragraph 44, Sonder UT).

Without TOMS, an internationally-operating travel-supplier is likely to register for VAT wherever travel services are purchased or supplied.

How was the law applied in Bolt?

Bolt presents to customers as a ride-hailing app which accepts requests for taxi rides from customers via the app platform and provides each customer with an estimated fare and arrival time. The public hire vehicle (PHV) drivers are independent contractors. Once a request for a ride has been received, Bolt allocates the journey to a PHV driver who is willing to transport the customer. All booking and acceptances of the PHV journey are carried out via the platform and in accordance with Bolt’s terms and conditions for drivers and passengers.

The UT considered how the tests for TOMS should be applied.

• The services must relate to travel or a journey.
• There is no requirement for the taxpayer’s supplies to involve a multiplicity of services.
• There is no requirement for a cross-border element.
• The purpose and duration of travel are irrelevant.
• TOMS only applies to bought-in services.
• Bought-in services cannot be ancillary to a principal supply which is not within the scope of TOMS.
• Only services ‘identical or at least comparable’ (at a high level) to those provided by travel agents and tour operators fall within TOMS.
• Bought-in supplies are to be supplied ‘for the direct benefit of travellers’ (compare the bought-in supply and the supply made to the traveller).
• The service received by the traveller should be the same as or comparable to the service supplied to the TOMS-supplier.

The UT in Bolt concluded that the taxi rides provided to customers related to travel and were comparable, at a high level, to supplies by travel agents; and that the nature of the taxi ride services purchased by Bolt did not change when provided to the customer. The notion that Bolt might add value to that supply did not transform what had been purchased by Bolt any more than a traditional travel agent who organises a journey for a client.

In addition, HMRC had argued that Bolt, by being the licensed PHV operator, had materially (i.e. legally) altered the supply purchased from the drivers by Bolt, when Bolt made its supply to the traveller. The UT expressly disagreed: the legal status did not materially affect the nature of the taxi rides, the benefit of which is received by the customer.

In-house supplies

‘In-house supplies’ are a prominent test applied by HMRC to exclude TOMS.

The Bolt UT explained that (paragraph 102) ‘There is no reference to “in-house supplies” in the PVD. The term is referred to in the CJEU case law typically in the context of distinguishing “in-house supplies” which cannot fall within the special scheme – because they cannot form part of the single service referred to in Articles 307 and 308 PVD – from supplies bought-in from third parties that fall within the scheme if the relevant criteria are met.’

For the Bolt UT, an ‘in-house supply’ refers to a supply made from the taxpayer’s own resources, where the nature of the supply to the customer fundamentally differs from the supplies the taxpayer receives from the other traders.

The distinction captured by CJEU case law is between purchases bought in for the direct benefit of the traveller, as opposed to purchases which are not bought in for the direct benefit of the traveller. But this simply begs the question: at what point is a purchase so altered that it is no longer ‘for the direct benefit of the traveller’ and becomes an ‘in-house supply’?

For example, a TOMS-supplier might purchase timber for their workshop to furniture: the timber is not for the ‘direct’ benefit of the traveller. The UK legislation conforms with the EU PVD, as the timber is ‘materially altered or further processed’ to create furniture. The supply of travel facilities including ‘in-house’ furniture will not fall within TOMS. The question in Bolt is whether adding services such as booking and the legal PHV licence render the driver services ‘in-house’ as being ‘not for the direct benefit of the traveller’ (i.e. ‘materially altered or further processed’).

The term ‘in-house’ adds nothing to the tests in law and is perhaps best avoided in marginal cases.

Bolt versus Sonder

We now have two TOMS cases, decided in opposite ways by different Upper Tribunals.

In Bolt, the TOMS test is that purchases are required to be for the direct benefit of the traveller, their nature not being fundamentally changed when provided to travellers as part of travel facilities. Both the FTT and the UT decided that this test was met by the taxi ride services supplied to Bolt and supplied within travel facilities by Bolt to the traveller, despite different legal status of what was purchased and what was supplied.

In Sonder, the same TOMS test was identified. Although the FTT decided that the interest in the property was purchased by Sonder for the direct benefit of the traveller, the UT decided that the legal ‘bundle of rights’ purchased by Sonder differed from what was supplied by Sonder to the traveller, despite the underlying property occupied by the travellers being the same.

It might be that the judges are settling on an interpretation broader than HMRC’s view, but narrower than suggested by the purpose of TOMS: that only purchases which the supplier provides direct to the traveller (such as taxi rides) qualify for TOMS.

It not clear that this captures the test in the EU PVD, where purchases qualify for TOMS when purchased for the direct benefit of the traveller (such as an interest in land irrespective of the legal quality of interest acquired). This better accords with the purpose of TOMS in helping taxpayers avoid multiple requirements to register in other countries when purchasing and supplying travel-related supplies such as passenger transport, sleeping accommodation, admission to events, catering, and so on.

Conclusion

TOMS is valuable for taxpayers. It saves them from registering for VAT in multiple countries in respect of sales and to recover input tax.

HMRC has applied the TOMS legislation narrowly, preventing many taxpayers from applying TOMS. The FTT decisions in both Sonder and Bolt suggested that HMRC had applied the TOMS legislation too narrowly, the implication being that many taxpayers had overpaid output tax in the UK. However, the UT in each case differed.

What is clear is that an important TOMS test is whether what the purchase by the TOMS-supplier was ‘for the direct benefit’ of the traveller. The suggestion is that what is purchased is to be compared to what is supplied to the traveller within the travel facilities provided. Has Sonder UT got it right: legal rights can fundamentally change what is purchased so that it was not purchased ‘for the direct benefit of the traveller’? Has Bolt UT got it right, that the nature of what is purchased is not fundamentally changed by adding legal requirements?

Both decisions can co-exist, but if we consider the purpose of TOMS (i.e. removing the requirement for taxpayers to register for VAT in multiple countries), this suggests a wider interpretation of ‘for the direct benefit’ of the traveller is preferable.

Further clarity from the judiciary would be welcome. Sonder has appealed the UT’s decision. At the time of writing it is not known whether HMRC will appeal the UT’s decision in Bolt, but it would not be a surprise if this were appealed. The journey continues!

This article was originally published in Taxation magazine in May 2025.

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