In 2015, there were around 298,000 licensed drivers in England. Of these 164,000 were private hire licences, 62,000 were taxi licences and 72,000 were dual licences. We all know that taxis and private hire cars enable us to get from A to B that much faster than public transport. They also offer a lot of convenience in terms of not having to worry about where to park your car when you’re going to the airport, for example. A taxi or private hire car can also come to your rescue at odd hours of the day or night when transportation is scarce. So, overall, they play an important role in society. But what is the case for taxi drivers and private hire cars in terms of value added tax (VAT) and VAT returns? We explore this question in more detail below.
What is the difference between a taxi and a private hire car?
A taxi, or hackney cab as it’s also known, is a vehicle that you can flag down from the street or from a taxi rank to transport you to your desired destination.
A private hire car, on the other hand, are also known as minicabs, and they may not be hailed from the street. Instead, you need to call in and book a driver and vehicle to come to your selected address to transport you to your final destination.
It’s possible that taxi drivers can be self-employed or a part of a wider organisation that uses radios to communicate when and where passengers need to be transported.
How does VAT apply to taxis and private hire cars?
According to the gov.uk website, there are several scenarios that should be distinguished from each other when it comes to VAT for taxi and private hire cars.
Firstly, if you are a self-employed taxi driver who has purchased their own vehicle or you rent it, this means you will be in business on your own account. As a result, the taxable supplies that you will be making include:
- Transport supplied direct to your own passengers, or
- The provision of your services to another taxi business where you supply them under a contract for services.
The second distinction that needs to be made is whether you use the agency service of a taxi business or a taxi association. Alternatively, if you drive your vehicle as an employee, you will not be considered a business for VAT purposes.
Are you liable to register for VAT?
If you are providing “taxable supplies”, you are by law required to register for VAT if the full amount you are paid for those supplies exceeds the VAT registration threshold. This amount is equal or over £85,000.
In order to complete this calculation, you will be required to add back any amounts (such as vehicle and radio rentals or agency charges – alternatively, taxi driver expenses) that the taxi firms deduct before they pay you.
On the other hand, if you are an owner-driver who is registered for VAT, you are required to issue a VAT invoice to any of your VAT-registered customers who request one.
Concluding remarks
VAT return services can seem like a complicated matter, especially if you are unfamiliar with this territory. You might feel that HMRC is targeting taxi drivers but it’s important to stay on top of new developments as they occur. Luckily, at Tax Navigator, we offer you a friendly and professional service that always lets you know where you stand in terms of your legal VAT obligations. Don’t hesitate to reach out to us to help you prepare and file your VAT returns so that you’re always one step ahead.