1. There are two different classifications of the way in which taxi businesses operate for VAT purposes.

2. Businesses can operate as an agent so that the taxi fare is paid as a direct transaction to the driver who is self employed and is registered for VAT if they are exceeding the turnover limits.

3. What is an agent for VAT purposes?

The VAT legislation states that "to act as an agent, you must have agreed with your principal(taxi driver) to act on their behalf in relation to this particular transaction concerned. This may be a written or oral agreement or merely inferred from the way you and your principal conduct your business affairs whatever form this relationship takes".

Other examples of where the business may demonstrate acting as an agent is as follows:

  • provision of other services such as rental of vehicles to drivers;
  • rental of radios or driver apps;
  • administration services, taking bookings on their behalf;
  • collection of fares on their behalf from an account customer.

4. As a principal where the business employs the driver or the business have account customers who are invoiced for their taxi journeys.

5. Taxi fares

Fares are charged as a standard rated supply of services for VAT purposes but how should you treat the supply of your business supply either as agent or as principal?

6. The value of your VATable supply of services as a principal is as follows:

  • Any fares you undertake personally if you are self employed/a director/a partner;
  • Fares payable by passengers even if you subcontract the work;
  • Full amount payable by your customer before you deduct any payments for your drivers.

7. The value of your VAT able supplies if you are acting as an agent:

  • The drivers are entitled to the full fare therefore if they are personally VAT registered then may apply VAT directly to the customer at standard rate on fares.
  • As an agent you may deduct the charges you make to the drivers from the account fares that you collect on behalf of the drivers.
  • Your charges to the drivers can include rental of vehicles, phones etc., and admin fees.
  • VAT is only due on taxi fares payable by customers if the driver is VAT registered.
  • If the driver is not VAT registered you must not charge VAT.
  • Applying VAT as an agent for cash work and as a principal for an account work.
  • You could be both an agent and a principal.
  • HMRC says that if you act as an agent for cash work and a principal for an account work you must account for VAT at the standard rate on the full charge to the drivers for rental on vehicles, radios etc.,
  • Tips or gratuities are outside the scope of VAT
  • Admin charges

The admin charge to account customers must show the admin charge you make to your customers separately on the invoice to the fares collected on behalf of the drivers.

If the drivers are not VAT registered however, you must not charge VAT as an agent on the fares payable by customers.

 

By Annette Stone, Personal Tax Manager

For more advice on this, please do not hesitate to contact me