I cannot actually remember refering to the number of seats. However, I dont think the number of seats are solely relavant to VAT.
As I see it, any PSV work is zero rated, even if you do it in a saloon car. Just as long as the car is PSV licensed, and you are charging separate fares, and operating a bus route.
To move on to Tom's comments, I too have heard that Invoicing on behalf of the drivers can avoid VAT, but only if the Invoicing is done in the drivers name. When invoicing in the circuits name, I would imagine that most circuits are over the VAT threshold and thus must account for VAT. It seems to depend on what area you are in, as to how Customs interpret the regulations.
As to reclaiming VAT on vehicle purchases, this is OK if the car is new, or is a qualifying vehicle sold with VAT, and thus OK for the big firms, but as a percentage on say a single owner-drivers margins, I doubt it would make a difference as to whether it was worth registering.
To me, VAT is a real pain in the Butt. We have owner-drivers, rental drivers, and employed on PAYE drivers, and it makes it a nightmare doing the percentage calculations and accounting for VAT on the firms share.
For example: A driver rents a car (60-40 split). The drivers share of take is not VAtable, as because the fare was between him and the passenger there is no VAT on the fare. But, there is VAT on the percentage of rent, which has to be swallowed by the circuit, as, because the driver is not registered for VAT, cannot be reclaimed by him. Thus, we account for VAT as "inclusive in the circuits percentage rental.
Then, with the account work, as we pay the drivers (they take it out of their cash take) we must VAT charge the customer on the full fare because the contract is between us and the customer for the account jobs.
Then, with the PAYE drivers, we must account for VAT on all fares, as again the contract is between us and the customer, not the driver.
The sooner we can go all owner-driver or all employed driver the better in my view, but the trouble is, the drivers dont want it. They all want to stay exactly as they are!!!! Such is life.