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