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Taxi Services

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The provision of taxi services to the public is chargeable at the standard rate of VAT 20%. 

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Taxi services comprise of:

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• Drivers who own or rent vehicles to provide taxi services to the public

• Companies that provide taxi services to the public by either using their own fleet of vericles or use drivers who operate on a sub contract basis.

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Drivers who own or rent vehicles to provide taxi services

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Drivers that use their own or rented vehicles to provide taxi services to the general public are doing so as self employed taxi drivers.

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Drivers must register for VAT where they they exceed or intend to exceed the VAT registration threshold of £85,000 

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Standard Rated VAT 20% VAT is applicable on these taxi services as follows:

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• Taxi journeys provided to the public (including waiting time)

• Any additional charges for baggage

• Services provided to other taxi firms on a contract basis

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Note: Working for a taxi firm on an employed basis (as an employee) is not classed as being in business providing taxi services. The company employing the taxi driver(s) is providing taxi

services for VAT purposes.

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Companies that provide taxi or private hire services 

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Companies that provide taxi or private hire services to the general public using either employed or subcontracted drivers are providing vatable services and should charge 20% VAT.

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These services are either provided to customers who pay cash directly to the driver or to account holders who use private hire firms such as Addison Lee or UBER.

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Services that they provide where standard rated VAT 20% is applicable are as follows:​​

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• Taxi or private hire journeys provided by the company to the general public (individuals or companies etc) by drivers employed by the company

• Taxi or private hire journeys provided to the general public (individuals or companies etc) using subcontracted drivers or companies

• Taxi Journeys provided by the Owner, Director, Partner to the general public (individuals or companies)  using the companies vehicles or their own.

• Referral fees received from taxi drivers or firms for passing business to them

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Note: VAT should be applied to the full fare collected from the customer before any deductions made from amounts payable to subcontracted drivers or companies. (For example where you charge them for use of equipment such as radios, satnavs etc.)  Also VAT invoices or receipts should be provided to customers who request or require one.

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UBER vs HMRC - Note Uber was assessed for almost £400M by HMRC in 2023 for VAT in relation to VAT which HMRC argues is underpaid for historical fare rides where VAT was not charged by UBER.  UBER are challenging this assessment.  See link to Tax Policy Associates Article. Exclusive report: HMRC pursuing Uber for another £386m of VAT – Tax Policy Associates Ltd .  Also see BOLT case below in Dec 2023 which  may help UBER's case when heard in 2024.

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BOLT vs HMRC - Note BOLT recently won a tax tribunal case in London where it argued that it should only pay VAT to HMRC on the margin (difference between what it receives and pays to drivers) based on the Tour Operators Margin Scheme. 

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Veezu and Delta Taxis - 

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The Court of Appeal overturned the High Court’s earlier decision brought by UBER where it argued that VAT should be applicable to Taxi fares. This now means taxi firms in England and Wales – outside of London – will not be forced to apply VAT onto their fares.

The ruling will not impact Uber, who will continue to charge VAT on fares, but will mean many smaller firms can continue to operate as they have previously. (Source City AM)

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Business Structure of Companies that provide Taxi or Private Hire Services

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Principal or Agency Model

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where taxi or private hire firms use subcontracted drivers, they can either act in the capacity of Principal or as an agent to the drivers. 

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Acting as Principal

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Where taxi or private hire firms provide services to the general public as principal using subcontracted drivers, the services are being provided by the firm itself and it must account to HMRC for

VAT at 20% on the full fare charged to the customer.    

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Acting as Agent

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Where taxi or private hire firms provide services to the general public acting as agent for self employed drivers or other companies, it means the actual supply of transport services is between the self employed driver and the customer riding the taxi. 

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The Taxi firm acting as agent will normally:

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• Inform the drivers of customer bookings and location

• Collect cash on behalf of the drivers where bookings are made by account holders. 

• Invoice the drivers for their agency fee and charges for car and radio hire plus 20% VAT 

• Invoice account holder customers (including 20% VAT) for an admin charge which should be shown as a separate line on the total invoice for transportation services provided 

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Note: VAT should only be billed and collected from account holders where the driver is registered for VAT

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Using the Principal Model and the Agency Model 

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A company can use both the principal model and agency model for account holders and cash customers respectively provided there are properly drafted contractual agreements and terms with drivers and companies and there are genuine differences between the two sides of the business. 

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Taxi Associations

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Taxi Associations are companies that are set up by a group(s) of taxi drivers to:

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• Facilitate the allocation of customer orders among its members

• provide a central control room for handling and allocating jobs

• provide standard equipment such as radios, satnavs etc to members

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Taxi Associations must register for VAT where their services billed exceed the VAT Registration threshold of £85,000

  

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-Contains public sector information licensed under the Open Government Licence v3.0.

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