Taxis and private hire cars

HMRC Reference:Notice 700/25 (May 2002) View Change History
 

Contents

Foreword

Other notices on this or related subjects

1. Introduction

1.1 What is this notice about?

1.2 What is liable to VAT?

1.3 Input tax

2. Drivers of taxis and private hire cars

2.1 What supplies do I make as an independent self-employed driver?

2.2 Do I need to register for VAT?

3. Businesses which engage drivers

3.1 What types of business does this cover?

3.2 Accounting for VAT

3.3 Agent or principal?

3.4 Agent for both cash and account work

3.5 Accounting for VAT if you act as an agent for both cash and account work

3.6 Agent for cash work and principal for account work

3.7 Accounting for VAT on the agency services

4. Taxi associations

4.1 What is a taxi association?

4.2 Accounting for VAT

5. Selling your taxi or private hire car

5.1 What if I sell my business as a going concern?

5.2 Selling just the vehicle

5.3 What if I part-exchange a vehicle?

Do you have any comments?

 

Foreword

This notice cancels and replaces Notice 700/25 (November 2000). Details of any changes to the previous version can be found in paragraph 1.1 of this notice.

Further help and advice

If you need general advice or more copies of Customs and Excise notices, please ring the National Advice Service on 0300 200 3700. You can call between 8.00 am and 8.00 pm, Monday to Friday.

If you have hearing difficulties, please ring the Textphone service on 0300 200 3719.

If you would like to speak to someone in Welsh, please ring 0300 200 3705, between 8.00 am and 6.00 pm, Monday to Friday.

All calls are charged at the local rate within the UK. Charges may differ for mobile phones.

Other notices on this or related subjects

700 The VAT Guide
700/1 Should I be registered for VAT?
700/9 Transfer of a business as a going concern
700/64 Motoring expenses
718 Margin schemes for second-hand goods, works of art, antiques and collector’s items

1. Introduction

1.1 What is this notice about?

This notice explains how VAT applies to the taxi and private hire car trade. It has been restructured and rewritten to improve readability, but the technical content has not changed from the November 2000 edition.

Private hire cars include what are often referred to as “mini-cabs”. You should read this notice (which is available both on paper and on our Internet website at www.hmce.gov.uk) if you are:

  • a driver who owns or rents a vehicle (an “owner driver”)
  • the owner of a business which operates a number of vehicles or
  • operating a taxi association.

1.2 What is liable to VAT?

The fares you charge to your passengers for taxi or private hire journeys are liable to VAT at the standard rate. This also includes any additional charges you may make such as for:

  • baggage or
  • waiting time.

Other sources of income liable to VAT may include:

  • referral fees received from another taxi firm (where, for example, you have passed business on to them)
  • charges for supplying fuel or the rental of vehicles and/or radios to drivers and
  • administration charges to customers (for example where you provide them with periodic details of the journeys they have made).

On the other hand, tips or gratuities that are voluntarily given by passengers are not regarded as payment for a supply and are therefore outside the scope of VAT.

Where your charges are VAT inclusive, you can work out the VAT element by multiplying the fare, including any extras, by the VAT fraction. You can find out more about the VAT fraction in Notice 700 The VAT Guide.

1.3 Input tax

There are special input tax rules that apply to VAT charged on the purchase of a motor vehicle or the purchase of road fuel for business use. Guidance on how these rules apply to taxis and private hire cars can be found in Notice 700/64 Motoring expenses.

2. Drivers of taxis and private hire cars

2.1 What supplies do I make as an independent self-employed driver?

If you have purchased or rent your own vehicle and operate it on a self-employed basis, you will normally be in business on your own account. This means that you will be making taxable supplies in the form of:

  • transport supplied direct to your own passengers and/or
  • your services to another taxi business where you supply them under a contract for services.

Where you supply transport to your own passengers you may use the agency services of a taxi business (see section 3) or a taxi association (see section 4) to obtain customers for you. If, however, you drive for a taxi or private hire business as its employee, you are not considered to be in business for VAT purposes.

2.2 Do I need to register for VAT?

If you are making taxable supplies (see paragraph 2.1) you must register for VAT if the full amount you are paid for those supplies exceeds the VAT registration threshold. To calculate this you must add back any amounts, such as vehicle and radio rentals or agency charges, deducted by a taxi firm before they pay you. You can find out more about registering for VAT in Notice 700/1 Should I be registered for VAT? If you are an owner driver registered for VAT, you must remember to issue a VAT invoice to any of your VAT registered customers who asks for one.

3. Businesses which engage drivers

3.1 What types of business does this cover?

This includes all businesses, whether they are a sole proprietorship, partnership or limited company, which either:

  • employ staff to drive taxis or private hire-cars or
  • take on self-employed drivers to work under a contract for services.

3.2 Accounting for VAT

If you run a business of this kind, then unless you are acting as an agent for any of your drivers for some, or all, of the work they do (see paragraph 3.3), you are a principal in making the supply of transport to the customer. In working out the value of your supply you should remember that this must include:

  • the full amount payable by the customer before deducting any payments made to your drivers
  • any fares you (as the sole proprietor, director or partner) receive if you drive for the firm
  • the full fares payable by passengers even if you sub-contract work to an independent business or owner driver and
  • any referral fee you receive from other taxi businesses.

3.3 Agent or principal?

As a taxi or private hire car business you may perform two different types of work. These are:

  • cash work, where individual customers pay cash to the driver on completion of the journey and
  • account work, where regular customers, particularly companies and institutions, are allowed to settle their bills periodically.

If all your drivers are employees you are a principal and must follow paragraph 3.2 when accounting for VAT. However, if your drivers are self-employed you may, depending on the agreements you have with them, be acting as their agent for cash work and in some cases for account work as well.

3.4 Agent for both cash and account work

Whether you are acting as an agent depends on the terms of any written or oral contract between you and the drivers, and the actual working practices of your business. For further information on how to decide whether you are acting as an agent or a principal see the section dealing with agents in Notice 700 The VAT Guide. Typically in acting as an agent for your drivers you will:

  • relay bookings to the drivers (usually on a rota basis) for an agreed fee
  • possibly also provide them with other services such as the hire of cars or radios and
  • collect fares on their behalf from account customers.

If you act as an agent, the drivers are entitled to the full fares paid by the customers, even though the charge for your agency services may be deducted from the account fares you collect for them.

3.5 Accounting for VAT if you act as an agent for both cash and account work

As an agent your supplies can include ...


In which case, if you are registered, you must account for VAT on ...


a supply of agency services to your drivers.


amounts you receive for this from your drivers (including any additional charges you may make such as for vehicle or radio rental).


administration services to account customers.


your administration charge to account customers. (If, in invoicing account customers, you show an administration or similar charge on the same invoice as fares collected on behalf of the drivers, you must itemise separately the supplies on which VAT is chargeable).


When you are acting as their agent, the drivers make the supplies of transport. In which case VAT is only due on the fares payable by the customers if the driver is registered for VAT. If the drivers are not registered for VAT, you must not charge VAT or issue a VAT invoice on their behalf for the customers’ fares. For further information about how you should account for VAT if you issue invoices on behalf of VAT registered drivers, see the section dealing with agents in Notice 700 The VAT Guide.

3.6 Agent for cash work and principal for account work

You may, depending again on the terms of any written or oral contract between you and the drivers and the actual working practices of your business, be acting as an agent for the drivers for the cash work they perform (see paragraph 3.4), and as a principal for the work done for account customers (see paragraph 3.2). However, if you are to account for VAT on this basis you must be able to satisfy us that:

  • the arrangements are reflected in the terms agreed with your drivers and
  • there is a genuine difference in the operation of the cash and account sides of your business.

3.7 Accounting for VAT on the agency services

If you operate as an agent for cash work and a principal for account work, you must still account for VAT at the standard rate on the full charge to the drivers for the rental of vehicles, radios or other services you supply to them. This applies even if you:

  • offset the charge when calculating the rate due to the drivers for account work they perform for you or
  • deduct it before paying them for account journeys.

4. Taxi associations

4.1 What is a taxi association?

Some independent and self-employed taxi drivers form taxi associations to provide services to the individual driver members. These services can include:

  • operation of a booking office and radio link
  • hire of radios and
  • provision of rest facilities.

4.2 Accounting for VAT

Supplies to members are always standard-rated whether they pay for them by periodic subscription or by deduction/offset from fares collected on the members’ behalf. Taxi associations must be registered for VAT if the total of all such charges, together with the total charges for any other supplies they make, exceed the VAT registration threshold. Additional supplies can include an administration fee for services supplied to customers, such as providing a breakdown or analysis of journeys made (see paragraph 3.5 for details about invoicing for charges of this kind). You can find out more about registering for VAT in Notice 700/1 Should I be registered for VAT?

5. Selling your taxi or private hire car

5.1 What if I sell my business as a going concern?

If you dispose of your taxi or private hire car because you sell or transfer your business as a going concern, you will not be making a taxable supply provided certain conditions are met. You can find out more about this in VAT Notice 700/9 Transfer of a business as a going concern.

5.2 Selling just the vehicle

If you ...


and you ...


then you ...


sell a taxi or private hire car,


have previously reclaimed input tax,


must account for VAT on the full selling price.


did not previously claim input tax (for example, the vehicle was purchased from a private individual),


may, provided you meet the conditions, use the second-hand margin scheme for the onward sale of the vehicle. You can find out more about this in Notice 718 Margin schemes for second-hand goods, works of art, antiques, and collectors’ items.


sell a taxi,


include a local authority hackney carriage licence plate,


are making a single supply of goods. The full selling price for which is the total amount charged for the vehicle and licence plate. You must account for VAT as already explained above. However, licence fees paid to a local authority to operate a taxi cannot be included in the purchase price of a vehicle when calculating the VAT due under the second-hand margin scheme.


5.3 What if I part-exchange a vehicle?

If you exchange, or trade-in, a taxi or private hire car when you purchase a replacement, you must account for VAT in the same way as if you had sold the old vehicle for cash. You must treat the exchange or trade-in allowance you receive as the selling price.

Do you have any comments?

We would be pleased to receive any comments or suggestions you may have about this notice. Please write to:

HM Customs & Excise
Supply of Services Team
4E, New King’s Beam House
22 Upper Ground
London
SE1 9PJ

If you have a complaint or suggestion

If you have a complaint please try to resolve it on the spot with our officer. If you are unable to do so, or have a suggestion about how we can improve our service, you should contact one of our Regional Complaints Units. You will find the telephone number under ‘Customs and Excise - complaints and suggestions’ in your local telephone book. Ask for a copy of our code of practice ‘Complaints and putting things right’ (Notice 1000). You will find further information on our website at http://www.hmce.gov.uk.

If we are unable to resolve your complaint to your satisfaction you can ask the Adjudicator to look into it. The Adjudicator, whose services are free, is a fair and unbiased referee whose recommendations are independent of Customs and Excise.

You can contact the Adjudicator at:

The Adjudicator's Office
Haymarket House
28 Haymarket
LONDON
SW1Y 4SP

Phone: (020) 7930 2292
Fax: (020) 7930 2298
Email: adjudicators@gtnet.gov.uk
Internet: http://www.adjudicatorsoffice.gov.uk/

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