Taxi Driver Online

Taxis and private hire cars

May 2002

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 “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”.Main narrative treatment—V3.443, V3.435–436.
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.Main narrative treatment—V3.119, V3.221.
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.Main narrative treatment—Division V2.1.
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.

Main narrative treatment—V3.119.
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.

Main narrative treatment—V3.151–166.
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.Main narrative treatment—V3.221.
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.Main narrative treatment—V3.221.
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”.Main narrative treatment—V3.221.

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.

Main narrative treatment—V3.221.
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.

Main narrative treatment—V3.221.
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.

Main narrative treatment—V2.112, 211, V3.221.
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?”.Main narrative treatment—V2.112.

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”.Main narrative treatment—V2.226, V3.116.
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.

Main narrative treatment—V3.534, 538.

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.Main narrative treatment—V3.152.

Taxis and private-hire car trade control note.

Section 1 Taxis and private-hire car trade control note

1.1 Scope of this note

Our books of guidance are the main reference material for people in the Department. All Customs and Excise's formal procedures and work systems are outlined in these books which give managers and staff the Department's rules and guidelines and general advice on interpreting them.The guidance is aimed at C&E staff and should not be relied upon by businesses in calculating their taxes and/or duties.This control note:

* ● supplements the information contained in VAT Leaflet 700/25/84, 'Taxis and private hire-cars';
* ● describes the organisation and lists the five main categories of the trade;
* ● explains the nature of taxable supplies;
* ● details the regulations of the trade; and
* ● focuses on the informal economy and hope to undertake a full investigation.

1.2 Release of information: Open Government Code of Practice
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

1.3 Withheld

This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

1.4 The role of the SME team
The SME Assurance team is responsible for the contents of this note, which were revised in 2003. Any feedback relating to this note should be sent to the SME Assurance Team, Queens Dock, Liverpool.
Section 2 Organisation
The taxi and hire-car trade may be divided into 5 main categories:

2.1 Owner driver

Many owner-drivers in the taxi trade operate independently. It is common for owners of hire-cars to operate through an association, or agency, or to sub-contract their services to another business. Owners of licensed taxis often hire them to journeymen, when not required for their own use.

2.2 Journeymen
Journeymen are self-employed and in business on their own account, but do not own their vehicles, hiring them from fleet operators, or owner-drivers. Hiring's are usually on one of the following terms.
2.2.1 On the clock

The driver may keep a fixed percentage (possibly 40 – 45%) of any takings, plus tips. The owner bears the cost of fuel and maintaining the vehicle, or this may be extracted before the split is made.

2.2.2 On mileage
The owner pays a rate per mile covered, whether the vehicle is engaged or not. The owner bears the cost of fuel and vehicle maintenance.

2.2.3 On the flat
A fixed charge is made for the hire period and either the driver, or the owner, bears the fuel and maintenance costs. This is currently the most popular type of hire, and accounts for approximately 75% of agreements with journeymen. The usual hire periods are 'full rate' – normally for a 7-day hire period, or 'half rate' – normally half-day hiring's for a week.Occasionally, although this contravenes the taxi regulations, journeymen who have vehicles on weekly or monthly hire, may sublet them to other drivers.

2.3 Fleet operators
Fleet operators may use their own drivers and make taxable supplies to customers; or they may hire their vehicles to self-employed drivers who make the supply. In the latter case, the fleet operator will often provide agency and other services to the drivers. Fleet operators may have other business interests, such as a garage.

2.4 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

2.5 Agencies
These businesses, which own no vehicles of their own, supply radios and a booking service to self-employed drivers. They may also collect fares on the drivers' behalf, under account arrangements with local authorities, large companies etc. Most agencies charge a flat rate commission for these services, but others may base their charge on a percentage of the drivers' takings. This latter method is unpopular, because it is often difficult for the agency to verify the drivers' takings.The businesses are very volatile, drivers come and go, or a business may be set up and run for a short period, before it is sold or split.

Section 3 Taxable supplies

Some fleet operators, taxi associations or agencies arrange bookings for self-employed drivers, or contract with account customers and issue invoices in their own name. In this case it is necessary to decide whether it is the business, or the driver, who makes the supply of transport to the customer.

3.1 Cash work
It is accepted that the driver makes the supply, unless it can be shown that the driver is working for the business, in the same way as an employee. In the early part of this century, the High Court ruled that an arrangement between a taxi proprietor and a driver, where the fares were shared in an agreed proportion, did not amount to employment. It ruled that the taxi had been hired to the driver, who was in business on his own account. Unless there is a formal contract of employment, or the driver is paid at a rate unrelated to the fares charged by the business, the driver makes supplies direct to customers. It is therefore to be expected, that few drivers could be shown to be working for a business in relation to cash journeys.

3.2 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

3.3 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

3.4 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

3.5 Fares
Due to the high proportion of cash trade it is often difficult to establish traders' gross takings exactly. Although there are variations from area to area, fares for licensed taxis are usually controlled by local authorities. Knowledge of the local scale of fares and supplementary charges, will often assist in forming an impression of probable turnover. In London, taxi drivers are obliged to take any fare for journeys up to 6 miles, or an hour's duration. Frequent short trips yield greater takings than longer journeys, but hire-cars tend to be more profitable than taxis over longer distances.Taxi-fares are made up of an initial hire charge, a distance charge, a waiting charge and supplements.

The usual supplementary charges cover additional passengers, animals, excess luggage and unsocial hours, although there are variations in different areas. Supplements for night journeys in particular, tend to be lower in cities, than in smaller towns and rural areas.Hire-car charges may vary considerably. They do not always have to be metered, although there is usually a minimum charge. Fares tend to be based on mileage, either from pick-up to destination, or from base to base. In some areas, standard charges are made for common destinations such as stations or airports. Chauffeur driven limousines for events such as weddings and luxury touring services for visitors, are usually charged at a flat fee, or daily rate.

3.6 Tips and gratuities
For VAT purposes, gratuities are not the consideration for any supply and are therefore, outside the scope of the tax. They must be taken into account however, when considering the credibility of a trader's declared takings, in comparison with apparent standard of living. Although dependent upon area, type of fare and the length of journey, tips are usually between 10 – 20% of the fare.

3.7 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

3.8 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

3.9 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

3.10 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

3.11 Liability to register
There may be instances where the income from 2 vehicles is sufficient for registration. Unless there is some other taxable activity that must be included in the total taxable turnover, only the most hard working individual taxi driver is likely to be registrable.
Section 4 Regulation of licensed taxi trade

4.1 Local Authority

* ● Rules require that all private hire journeys be booked, and that records detailing each journey are retained. Depending on the local authority, these records may be required to be retained for as long as 12 months. These records are required to show details of the driver who does each job, and therefore provide a useful check on the number of drivers who rent radios from agencies at any one time. Nearly all the local authorities in England and Wales and over half of those in Scotland exercise their option to control the taxi trade by legislation. The powers they adopt locally vary, but are aimed at setting fares, the minimum standards for drivers and vehicles, and limiting the number of vehicle licences issued. Most licences are issued for a year, although some authorities issue them for 2 or 3 years. Examination of local authority rules and 'Operators licenses', if applicable, can be useful.

* ● In London there is no restriction on the number of licences issued.

This means that a licence holder may not necessarily be an active driver. To hold a full licence all drivers have to pass a qualifying test, which includes the requirement to demonstrate a thorough knowledge of the London area. It takes at least-18 months for a potential driver to pass the test. In the interim drivers may operate as 'yellow badge' holders. This only entitles the holder to operate within a restricted suburban area and consequently reduces takings. When the test has been passed, the driver becomes a 'green badge' holder and can ply for trade anywhere in the Metropolitan Police District.

4.2 Public Carriage Office (PCO)
Following the implementation of the Private Hire Vehicles (London) Act 1998 the Public Carriage Office (PCO), previously only responsible for Hackney Carriages, are also now required to administer and regulate those mini cab operators, who trade within the Greater London area.Regulations to ensure the mini cab operators comply with all the requirements will be introduced in three separate phases of which, only the first is of major interest to Officers of Customs and Excise.

The first phase was introduced in December 2001 and requires the operators to declare themselves to the PCO, through application for an operators licence. The licence requires the operator to advise the PCO of the number of drivers used, the length of time they have been operating as a business, VAT number if registered and all other business names used.

The PCO will issue the operator with a unique serial reference number that should be displayed at the business premises. Under this regulation, the operator is required to keep details of all drivers used, ie photograph, address, insurance details, car reg, DOB, and National Insurance number. The operator is required to keep such information for a minimum of 12 months after the driver has left the business. Failure to comply with these requirements will result in sanctions by the PCO.

The second stage due to be introduced by August 2003 will cover the requirements relating to vehicles considered for licensing.The third and final stage of the Licensing law has yet to be introduced (12/02), but is expected to cover the requirements of the actual vehicle drivers and is therefore not expected to have any direct relevance to VAT matters.

4.3 Hackney carriages
A vehicle which is to be used for hire, must be licensed and carry an official Hackney Carriage licence 'plate'. Where a local authority restricts the number of plates issued, a demand is created for licences in excess of their supply and waiting lists can extend to over 5 years. As a result licences may, where permitted, change hands for considerable sums of money. In London, licence plates are not transferable, but because there are no restrictions on numbers, this does not create the same condition of demand exceeding supply.

The sale of a taxi licence is a taxable supply for VAT purposes. Usually licences transferred on the open market are sold with a vehicle, in which case the sale is taxable as a single supply of goods, ie the licensed taxi. However, the sale will be relieved from VAT, if the licensed taxi is an asset of a business sold as a going concern.

The conditions described in the VAT Leaflet 700/9 'Selling or transferring a business as a going concern' must be met. The transaction must include more than just the licensed taxi eg lists of regular customers, the right to use a radio network etc.In London 96% of cabs are diesel driven and most are of the Austin FX4 marque. There is likely to be considerable uniformity in performance between vehicles.Outside London, there is a greater variety of vehicle types used and many are petrol driven. However, where some local authorities have laid down specifications similar to those operative in London, Austin FX4 type vehicles will be found.

4.4 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

Section 5 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

Section 6 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

Section 7 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

Section 8 Withheld
This area of guidance has been withheld because disclosure would prejudice the assessment or collection of taxes/duties or assist tax/duty avoidance or evasion

Taxis and hire cars

VAT liability of fares.

Zero-rating of domestic passenger transport does not apply if the vehicle is designed to carry less than ten passengers. Taxi and hire car fares are, therefore, standard-rated and if the business provider is registrable for VAT, it must charge VAT to its customers.

Extra charges for baggage, waiting time, etc are also standard-rated as are referral fees from other taxi businesses. Tips and gratuities given voluntarily are not payments for supplies and are outside the scope of VAT. VAT due is calculated by multiplying the fares, including extras, by the VAT fraction. See 47.2 output tax.Invoices. Registered persons must issue VAT invoices to any customer who asks for one.

See 40 invoices.Types of business and VAT consequences.

* (a) Independent self-employed drivers. If a driver has purchased or rented his own vehicle and operates it on a self-employed basis, he will normally be in business on his own account and will be making taxable supplies in the form of
*
o ● transport supplied direct to his own passengers; and/or
o ● services to another taxi business where he supplies them under a contract for services.
* Where the driver supplies transport to his own passengers, he may use the agency services of a taxi business (see (b)(iii) below) or a taxi association (see below) to obtain customers. If, however, he drives for a taxi or private hire business as its employee (see (b)(i) below), he is not considered to be in business for VAT purposes.
* A self-employed driver must register for VAT if making taxable supplies where the full amount he is paid for those supplies exceeds the VAT registration threshold. To calculate this, any amounts, such as vehicle and radio rentals or agency charges, deducted by a taxi firm must be added back to the amounts actually received.
* (b) Businesses which engage drivers. This includes all types of business, whether sole proprietorship, partnership or limited company. There are three common scenarios for who is supplying the taxi and hire car services to the customers.
*
o (i) Drivers are employees of a cab business. Where a cab business employs staff to drive its taxis or hire cars, the business makes the supplies to the customers and must account for output tax on
o
+ ● the full amount payable by customers before deducting any payments made to drivers;
+ ● any fares the sole proprietor, director or partner, as the case may be, receives if he drives for the firm;
+ ● the full fares payable by passengers even if the work is sub-contracted to an independent business or owner driver; and
+ ● any referral fee received from other taxi businesses.
o The drivers are not considered to be in business for VAT purposes. Any money retained by the drivers is outside the scope of VAT as remuneration for their services as employees.
o This scenario is, however, rarely the case and HMRC will only agree that this is so if a contract or agreement between the cab business and the driver clearly states that a contract of employment exists and/or there is evidence that the driver is taxed under Schedule E by the Inland Revenue.
o (ii) Drivers are self-employed and provide their services to a cab business. The cab business will usually own the vehicles and bear expenses relating to them. Typically, there are more drivers than vehicles and the firm has to exercise control over the drivers to ensure that it is adequately covered at all times.

The cab business is buying in the services of drivers and selling the taxi transport on to the final customer as principal. The cab firm must account for output tax as in (i) above. Monies retained by the drivers are consideration for a supply of services by themselves to the cab business under a contract for services (see (a) above).
o (iii) Drivers are self-employed and provide their services directly to the customers. The drivers will usually own their own vehicles and bear expenses relating to them. They have far greater freedom to accept or refuse work; and conversely, they have to bear far greater financial risk. The cab business or taxi association acts as agent for the drivers, usually providing them with services such as radio hire, booking and support services in return for a commission or fee. This is a standard-rated supply of services by the business or association whether the drivers pay by periodic subscription or by deduction or offset from payments collected on their behalf. The business or association must register for VAT if the total of all such charges and any other supplies it makes (eg administration fees for services supplied to customers such as a breakdown or analysis of journeys made) exceeds the VAT registration limit. Individual drivers need only account for output tax if their supplies exceeds the VAT registration limits (see (a) above).

In practice it is often difficult to distinguish between (b)(ii) and (b)(iii) above. Factors which HMRC take into account include the following.

* (1) Ownership of the vehicles. Ownership by the cab business indicates (b)(ii) whereas ownership by the drivers indicates (b)(iii).
* (2) Driver's access to vehicles where owned by the cab firm. Vehicles kept on the business's premises with no private use indicates (b)(ii). Vehicles hired to drivers and available for private use indicates (b)(iii).
* (3) Costs and expenses. If the cab business taxes, insures and maintains the vehicles and meets fuel costs, this indicates (b)(ii). If the drivers do, this indicates (b)(iii).
* (4) Payments by drivers to cab firm for support services. If the drivers pay an agreed percentage, this indicates (b)(ii). If they pay a fixed weekly sum, this indicates (b)(iii).
* (5) Risk of bad debts. If cheques from customers are made payable to the cab business and it compensates drivers if a cash customer does not pay, this indicates (b)(ii).
* (6) Advertising on cars. If cabs bear the business logo, this indicates (b)(ii).
* (7) Control exercised by the cab business. If the cab business draws up rosters and drivers must accept work offered and be available at set times, this indicates (b)(ii). If drivers work hours that suit them, this indicates (b)(iii).
* 8. Keeping records. If the cab business keeps detailed records for each driver and can calculate each driver's takings, this indicates (b)(ii). If records are limited to who answered what call, this indicates (b)(iii).
* (9) Prices for customers. If the business sets the prices and no deviation is allowed, this indicates (b)(ii). If the prices are only advisory and in practice drivers charge more or less, this indicates (b)(iii).

For cases where self-employed drivers were held to supply their services to the cab firm under (b)(ii) above, see Hamiltax (VTD 8948) (TVC 60.215) and Knowles (t/a Rainbow Taxis) (VTD 13913) (TVC 60.216). For cases where the final supply to the customer was held to be by the drivers under (b)(iii) above, see Triumph and Albany Car Service (VTD 977, VTD 1004) (TVC 60.219) and Carless v C & E Commrs, QB [1993] STC 632 (TVC 60.221).Fees paid to controllers.

In Home Or Away Ltd (VTD 18195) (TVC 60.227) a company engaged staff (which it treated as self-employed) to act as controllers. Drivers paid 10% of their fares directly to the controllers as fees. The tribunal held that, on the evidence, although the fees were paid directly to the controllers as a matter of convenience, they were paid for a supply by the company of the services of the controllers to the drivers.Account work.

Many taxi and hire car businesses engage in cash work (where customers pay cash to the driver upon completion of the journey) and account work (where regular customers, usually businesses, are allowed to settle their bills periodically). In most cases there will be no difference between the operation of the two types of business, ie both will fall within the same category under (b)(i)–(iii) above and VAT must be accounted for as indicated under the relevant category.

Where both cash and account work falls within (b)(iii) above, invoices raised by the business to account customers should itemise separately

* ● fares collected on behalf of drivers (with the addition of VAT if the driver is registered); and
* ● any administration or similar charge by the business (with the addition of VAT if the business is registered).

However, there may be a genuine difference between the treatment of cash and account work with the business acting as agent for cash work under (b)(iii) above but principal for account work under (b)(ii) above. If such arrangements are adopted, the business must satisfy HMRC that

* ● the arrangements are reflected in the written terms agreed with the drivers; and
* ● there is a genuine difference in the operation of the cash and account sides of the business.

If a business operates as an agent for cash work and a principal for account work, it 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 supplied to them. This applies even if the charge is

* ● offset when calculating the rate due to the drivers for account work they perform; or
* ● deducted before paying them for account journeys.

See RJ and CA Blanks (VTD 14099) (TVC 65.125).The basis of payment (eg where drivers are paid a fixed hourly rate for account work but their payment for cash work is directly related to takings) could be one indication of a contractual distinction between cash and account work.

See Triumph and Albany Car Service and Carless above for cases where the cash and account customers were held not to be distinguishable; and Camberwell Cars Ltd (VTD 10178) (TVC 60.225) and A Hussain (t/a Crossleys Private Hire Cars) (VTD 16194) (TVC 60.220) where the tribunal held there was a real distinction between cash and account work.

Taxi associations. 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.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 (eg providing a breakdown or analysis of journeys made).Purchases of motor vehicles. VAT can be reclaimed on the purchase of a motor car if

* ● it is a qualifying motor car; and
* ● it is intended primarily to be used for letting on hire with a driver for the purpose of carrying passengers.

A qualifying motor car is generally either a new car or a used car where all previous owners were able to reclaim input on their purchases. See 45.3 motor cars for further details.Fuel. Input tax is reclaimable on fuel bought for use in taxis or hire-cars by the proprietor and, for the time being at least, employees of a business. However, if the business funds private motoring, a scale charge is payable.See 45.10-45.19 motor cars for motor expenses generally including fuel and private motoring.Sales of taxis and hire cars.

If a taxi or hire car is sold on which input tax has been previously reclaimed, VAT must be accounted for on the full selling price. If no input tax has been previously reclaimed (eg because it was purchased under the second-hand scheme or from a private individual) it may be sold under the second-hand margin scheme provided the conditions for the scheme can be met.

VAT need then only be accounted for on the excess, if any, of the sales proceeds over cost. See 61 second-hand goods.Where a vehicle is sold with a local authority hackney carriage licence plate, there is a single supply of goods (ie a licensed taxi).

The full selling price is the total amount charged for the vehicle and licence plate. Licence fees paid to a local authority to operate a taxi cab are treated as separate supplies of services and cannot be included in the purchase price of a vehicle when working out the VAT due on sale under the second-hand margin scheme.Where a taxi or hire car is exchanged or traded on the purchase of a replacement vehicle, VAT must be accounted for in the same way as if it had been sold at a price equal to the exchange or trade-in allowance received.

Sale of business as going concern. If a taxi or car hire business is sold as a going concern and certain conditions are met, there is no taxable supply for VAT purposes and no VAT liability on the assets sold, including any taxis or hire cars included in the price. See 8.10 business. To be treated as such a sale, the transaction must include more than just the sale of a vehicle (eg the rights to a radio network, goodwill, lists of customers).(VAT Notice 700/25/02). (Internal Guidance V1–5, Chapter 3 paras 3.51-3.56).

fo gods sake it is not complicated

Are you an agent

are you a pinciple

or are yoiu both
once you have answered this question then you should be very clar where you are going with the VAT.

Honest it is not rocket science.

regards

eric