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PostPosted: Tue Jun 26, 2012 4:43 pm 
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Hello.

I am trying to help out a friend with his admin for his Private Hire Business. He recently submitted accounts and has had a letter from the VAT people saying he is over the threshold - he is not VAT registered.

Could someone tell me what would be counted as turnover for VAT purposes please?

Most of his business is account work and he has a few drivers who work on a self employed basis and pay him rent.

To make it simple, say he charges a customer £75 for a return airport journey, he pays the driver taking them out £35 and the same to the driver who does the return. So he only takes £5 of the £75. He then charges each driver 25% rent on the amount earned i.e. £8.75 x 2 (£17.50), so his total income from that job would be £22.50. What part of that would be subject to VAT.

I know his accountant would have all this info but I am trying to learn so I can help him and would be extremely grateful for any assistance.


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PostPosted: Tue Jun 26, 2012 4:47 pm 
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Helper wrote:
What part of that would be subject to VAT.

All of it.

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PostPosted: Tue Jun 26, 2012 4:59 pm 
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gusmac wrote:
Helper wrote:
What part of that would be subject to VAT.

All of it.

I have been telling a colleague of mine this for years but his accountant still maintains that only the payments from the drivers count as revenue. His business turns over around £350,000 and he isn't VAT registered.

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PostPosted: Tue Jun 26, 2012 5:01 pm 
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grandad wrote:
gusmac wrote:
Helper wrote:
What part of that would be subject to VAT.

All of it.

I have been telling a colleague of mine this for years but his accountant still maintains that only the payments from the drivers count as revenue. His business turns over around £350,000 and he isn't VAT registered.


I think HMRC would take a different view

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PostPosted: Tue Jun 26, 2012 5:17 pm 
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gusmac wrote:
Helper wrote:
What part of that would be subject to VAT.

All of it.



When you say "all of it" (and many thanks for the response btw), does that mean he would have a liability for the £75 from the customer and the £17.50 he takes from rent. Cause surely that way the £17.50 rent is being charged twice?

Or am I being dumb?


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PostPosted: Tue Jun 26, 2012 5:56 pm 
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Helper wrote:
gusmac wrote:
Helper wrote:
What part of that would be subject to VAT.

All of it.



When you say "all of it" (and many thanks for the response btw), does that mean he would have a liability for the £75 from the customer and the £17.50 he takes from rent. Cause surely that way the £17.50 rent is being charged twice?

Or am I being dumb?

I think that the VAT would be due on the £75. He would need to look at the £17.50 in a different way. Basically he would be paying the driver £57.50 for the job. Or should it be that the driver should invoice the company for the £57.50

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PostPosted: Tue Jun 26, 2012 7:29 pm 
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I think the VAT is only payable on his profit i.e. £5.

The rest of the money he is acting as an agent.

Else he would have to charge VAT on every job he took for the drivers, as it doesn't really matter the value or the destination when it comes to VAT.

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PostPosted: Wed Jun 27, 2012 1:09 pm 
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Sussex wrote:
I think the VAT is only payable on his profit i.e. £5.

The rest of the money he is acting as an agent.

Else he would have to charge VAT on every job he took for the drivers, as it doesn't really matter the value or the destination when it comes to VAT.


Looking at the guidelines on the Government site it states that you only act as "agent" if you give the driver the full amount of the fare taken from the customer, whereas he is only giving them £70 of the £75.


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PostPosted: Wed Jun 27, 2012 7:48 pm 
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In order to avoid a very large bill, it would be adviseable to get his Accountant involved a.s.a.p.

Believe me, his Accountants bill will be as nothing, if he puts so much as a comma in the wrong place.

As to which part is VATable, it all depends upon the basis of the Contract formed between, Himself, the Driver and the Client.

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PostPosted: Wed Jun 27, 2012 7:51 pm 
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Helper wrote:
Sussex wrote:
I think the VAT is only payable on his profit i.e. £5.

The rest of the money he is acting as an agent.

Else he would have to charge VAT on every job he took for the drivers, as it doesn't really matter the value or the destination when it comes to VAT.

Looking at the guidelines on the Government site it states that you only act as "agent" if you give the driver the full amount of the fare taken from the customer, whereas he is only giving them £70 of the £75.

An interesting point.

Maybe if the customer pays the driver, and the driver pays the operator his £5 commission, then things should be as I stated.

However if the operator is taking the money, and not giving it all to the driver, then VAT is applicable.

Maybe the operator should put up his weekly fees and not take any money off driver's work.

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PostPosted: Wed Jun 27, 2012 9:13 pm 
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There was a court case about this a couple of years ago, involving customs and a cab firm. Anyone remember it?

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PostPosted: Wed Jun 27, 2012 10:33 pm 
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I once became VAT registered to get the VAT back on Fuel for my Minibus Business, But only because it was classed as Public transport and it was a bit of a loophole....I did not have to Charge VAT but could reclaim it on fuel in the name of encouraging public transport.

That said though, I was never above the VAT threshold.

I would never venture anywhere near the VAT Threshold now as all that VAT return stuff did my head in.. ](*,)


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PostPosted: Wed Jun 27, 2012 10:35 pm 
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Talked to the accountant today and this is his take on it:

My friend is liable for VAT on all the monies he collects from the account work (even though the bulk of this is subsequently paid to the driver). The only way around this would be for the companies to pay the driver direct which just isn't feasible. He is also liable for VAT on the rents he collects from the drivers for cash jobs, not the full amount because in these the fare is paid direct to the driver.

The only grey area, and even the accountant is unsure on this one, is whether or not he would also be liable for VAT on the rent he takes back from the driver on account work. This hardly seems fair because he would then have a double liability on a portion of every job. e.g. He charges a company £75 all of which is subject to VAT. He then pays the driver £70 of this, but takes £17.50 (25%) back in rent. The accountant seems to think he could possibly be liable to VAT on the £75 plus the £17.50, giving him £92.50 liability on a job for which he has only been paid £75.

Will update when we hear more.


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PostPosted: Wed Jun 27, 2012 10:37 pm 
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Sussex wrote:
Helper wrote:
Sussex wrote:
I think the VAT is only payable on his profit i.e. £5.

The rest of the money he is acting as an agent.

Else he would have to charge VAT on every job he took for the drivers, as it doesn't really matter the value or the destination when it comes to VAT.

Looking at the guidelines on the Government site it states that you only act as "agent" if you give the driver the full amount of the fare taken from the customer, whereas he is only giving them £70 of the £75.

An interesting point.

Maybe if the customer pays the driver, and the driver pays the operator his £5 commission, then things should be as I stated.

However if the operator is taking the money, and not giving it all to the driver, then VAT is applicable.

Maybe the operator should put up his weekly fees and not take any money off driver's work.


The problem with this is that some of these companies are sending him 30+ jobs per month. They are then sent one monthly invoice which they pay to him. I can't see them being agreeable to separately invoicing different drivers. Could lose a lot of business if he tried this I think.


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PostPosted: Thu Jun 28, 2012 5:11 am 
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When the chap is registered for VAT he will add the VAT to the invoice. The company paying the invoice will presumably be VAT registered and will therfore claim back the VAT. So your mate will not be paying the VAT, the customer will. The rent that he is getting from the drivers is income and is subject to VAT. Now how he accounts for this VAT is up to him. He can either say that the ammount paid by the drivers is inclusive of VAT or he can charge the drivers VAT on top of the payment. My drivers pay me their money inclusive of VAT so for every £100 that they pay me, I pay the VAT man £16.67.

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