Taxi Driver Online

VAT office have just put a firm out of business down here. They say that they cannot act as agent if they own the cars. There are 9 qualification indicators as to whether they accept a driver is self-employed (not qualifying to charge VAT) or employed. The situation is quite clear for owner-drivers, but some of the indicators in their guide are not so clear.

Here is one of them (and I quote direct word for word)

Item 9. Prices for Customers. If the business sets the prices and no deviation is allowed, this indicates b ii [Employed driver] If prices are advisory and in practice drivers charge more or less, this indicates biii [Self-employed].

I found that interesting, as I thought only 5 manors in the UK had no fares set by The Councils. So, isnt the VAT book encouraging illegality?

_________________
There is Significant Unmet Demand for my Opinion.

I think the guidance should be read primarily in relation to the driver's relationship with the firm (which is, after all, what it's all about) rather than bringing the fare regulation perspective into it, although that of course will always be an overriding factor.

Thus it's really all about whether the driver has freedeom to negotiate prices, not that there might be an upper limit on these prices set by the LA.

I agree that in the normal scenario negotiating upwards is not going to happen, but if the firm does discounted prices (more common outside the big cities, I think) then clearly the driver could go up the way subject to still charging no more than the LA set fares.

And presumably the guidance also applies to PH, in which case it would be very relevant?

_________________
Taxi Driver Online
www.taxi-driver.co.uk

It's an interesting area in any case, but I've usually thought about it in relation to the income tax scenario rather than VAT.

Have you got the full text, Andy7?

_________________
Taxi Driver Online
www.taxi-driver.co.uk

Yeah lets have a butchers at this Andy.

My interpretation of the legislation is as follows.

you can be an agent, which means 100% of the turnover belongs to the driver, the operators tunover is only the percentage he takes.

This is regardless of if the car is owned by the operator or not, as the operator will also charge the driver for renting the car which also goes towards the operators turnover.

A principle only has employed drivers in company vehicles and therefore has to pay their tax ni vehicle maintenance and athe minimum hourly rate.

Then there is the agent and principle, a combination of the above.

I think that firm that has just been put out of business should appeal, unless of course they were charging for rent on the vehicle and not declaring it or had a seperate company set up for the purposes of this, VAT call this artificial seperation, which in laymans terms is fraud.

We need to know all the facts here before we start scrring the life out of operators, don't you think

Regards Eric

Yup. I do have the full text. It's quite long, so I will get it typed in and Email it to you Uncle Suss.

It's from an official VAT office book of some 2000 pages, so I will only include the relevant bits to Taxi & PH. All I have is the photocopies that the VAT office gave me on their last visit. I am trying to get them to send me a copy of the original now.

_________________
There is Significant Unmet Demand for my Opinion.

Yes, Eric. My view has always been the same as yours. So has the VAT offices until now. We have been trading under our present system for 20 odd years, and to my knowledge, there has been no relevent VAT regulation change.

They are telling me, that it is a change in interpretation by the VAT office, which is supported by the Courts, and quoting:

Hamilton (VTD8948) (TVC 60.215) and,
Knowles (t/a Rainbow Taxis) (VTD13913) (TVC60.216)

I don't know what these references are, as I cannot find anything on Court Precedence about them.

I have found, however, that ComputaCab went for a Judicial Review against VAT office, which they won, and that the case was on the very same issues. Will report more when I find out all the detail.

_________________
There is Significant Unmet Demand for my Opinion.

Andy7 wrote




I think in this instance the regulations need to be spelt out to the inspectors who clearly do not understand what they actually mean, this is being done all over the country by operators who have lived by these rules over the years, and have to be if only for self preservation.

Imagine them finding you are not interpreting the rules correctly and then gong back six years

Out of business and now are words that spring to mind.

In my experience the VAT inspectors are the last people to read the rules governing Taxi & private hire vehicles which is where the problem arises from in the first place



I believe, if I recall this is a change in interpretation with regards to atificial seperation, which has nothing to do with the Agents/principle rule we are all so familiar with.



And rightly so, I doubt however the issues were the same, for example there would be very little or no vehicle rental involved in this case and I believe this is the grey area here.

A grey area which can be clearly defined if the operator does this in accordance with the regulations.

I hate to harp on but the only operators I have ever heard of losing this type of case and their business are the ones who totally ignored the artificial seperation regulations and quite rightly so as this is fraudulant.

What is artificial seperation quite simple two different companies operating from the same trading address using the same staff and drivers, both owned by common directors both turning over, as agents one taking commission from the driver and the other charging rent for the vehicle both trading just less than the threshold, thus avoiding payment, the new interpretation says these two companies are one and therefore attract VAT as such.

So Andy is there anything new here I have mised please

Kind regards

Eric

Well, we dont qualify as an "artificial separation" and neither did the Company they put out of business in Witham. Both of us (as inded several other firms I know of, have operated our respective systems for many years, and have had previous VAT office visits, wherein the VAT office have accepted the system. (Its not like we dont pay VAT, we give them tens of thousands a year). Now, they say, its the drivers "self-employedness" that is challenged.

And yes, they do want to go back six years. Or in our case, to our last VAT inspection which was about five years.

As I said, no rule changes to VAT regs, but it seems now they are combined with IR, they are looking at getting rid of all self-employed drivers, unless they are owner-drivers.

I have no serious wish to argue with them, if there had been a rule change. But there hasn't. They are telling me it is "interpretation by the Courts". (And themselves of course). I have a different interpretation, so I have to argue.

_________________
There is Significant Unmet Demand for my Opinion.

Re Computacab. They had 25 vehicles they owned, which were rented.

_________________
There is Significant Unmet Demand for my Opinion.

Yes, the self-employed status of many drivers has always puzzled me, but as far as I know the IR has never pushed the point (at least on a national basis), and although there's plenty of case law as regards the topic generally, I don't know of any specific cases applying to the trade.

I think it's more of an income tax thing rather than pertaining to VAT, but of course the ramifacations for the latter are obvious.

Self-employment has never actually been defined in the tax legislation nor in employment legislation more generally, and the whole thing depends on case law and the Revenue's application of that to particular cases and the court's interpretation of the facts of each case if either side has challened this.

Thus it looks like a case of the Revenue using the broad principles of the case law and drawing up a few guidlines that can be specifically applied to the trade, and applying those guidelines in particular cases.

A couple of the more general tests include:

- does the person decide his working hours? While this may be the case as regards full flat drivers in the big cities, in smaller towns with multi-driver cars this may point more towards the driver being employed.

- does the person risk any capital? Does a hired driver ever risk capital?

_________________
Taxi Driver Online
www.taxi-driver.co.uk

Oh dear I can see this dilema now

Tax & VAT in cahoots with each other can only spell disaster.

There are so many Operators now charging the customers VAT regardless of if the driver is registered or not that it not surprising this confussion has arrised.

If you are charging the account customers VAT on 100% of the bill then you could be in deep cow dung here, as that indicates you are a principle and as such should be charging VAT to the drivers on their rent or employing them and paying tax and NI.

A true agent only charges the account customer VAT on the percentage extra they charge for admin purposes.

Threshold is also a word that comes to mind here, especially for the driver. For example if the driver earns more then he she should also be registered, which is a true recipie for disaster as they can then charge cash customers extra to cover the VAT. those punters very quickly disappear.

The crux of the matter is quite simply that the threshold has not risen sufficiently over the years to keep up with inflation, therefore we are caught again by this type on anomoly. Another example of this is stamp duty, house prices have risen 4 fold in the south over the past 10 years but the government has only doubled the threshold and only within the last year.

All I can say is this is bloody typical

Yup. It looks like the cheapest way out for us is to alter the system we run on by inducing more financial risk to the driver. We cannot charge the drivers six years back-dated VAT, and wouldn't anyway, its not like we are a big city, our drivers dont make fortunes. They cant afford this, neither can the circuit. To challenge it in court is also an expensive option, and they [VAT office] know this.

We've put it to the drivers that they all go owner driver, but most of them are dead against it. The suggestion here among the majority, is that we just rent them the cars on a mileage charge, rather than the percentage that they presently work on. The rest will just have to go on PAYE, which will force a quite major fare rise, as we are then liable for full VAT on the fare.

Its a no win situation for any of us.

_________________
There is Significant Unmet Demand for my Opinion.

Andy7 wrote:



What does this actually mean



I am uncertain what it is you are trying to achieve here

It is quite ok to have the drivers renting the vehicles from an operator, all providing that operator is registered for VAT if over the threshold, and then charging the driver as such, I really do not see the conflict here.

Our drivers earn less than the threshold, I make sure of that, most operators cap drivers earnings for one reason or another, so why should we not do this for VAT purposes?

IMHO we would be treading on very dangerous ground if we just rolled over and accepted this new interpretation of a few and made this acceptable.

I urge everyone to read and digest the leaflet 700 within which explains quite simply where we stand as operators.

In the meanwhile we leave the individual drivers to fight their own case and we should fight ours, vigourously.

Afterall they made the rules not us, all we are doing is interpreting them correctly.

Regards

Eric

On the risk issue, they are telling us that if a driver does not suffer the risk of making a loss, then they cannot be held to be self-employed.

For example, if they take cheques, the cheque must be paid to the driver, not the circuit, so that if it bounces, the driver suffers the loss, not the circuit. There are a whole bundle of issues like this.

_________________
There is Significant Unmet Demand for my Opinion.

Andy7 wrote:



Always done it that way can not understand why you have not, guess that's one of the reasons you are worried then

Regards Eric