0% RATED: What would a zero-rated taxi industry look like for Hackney Carriage drivers?

There are several VAT permutations being bandied about since the ‘Uber versus Sefton’ court ruling was announced, but we’re going to look at one example that exists in other countries like Ireland and Denmark: zero-rated VAT.

We caught up with Jason Short, Director of taxi accounting specialists Short and Sons Accountants Ltd, and asked how zero-rated VAT would affect hackney carriage drivers should it come in.

Short said: “Currently, Self Employed need to register for VAT at £85,000 turnover, which poses a massive problem for London Taxi Drivers since TFL sets the maximum fares. A VAT-registered driver would have a £10 metered fare slashed by £1.66 because of this. In the latest 2023 year SAS has seen drivers heading over £80,000 for the first time, with some coming extremely close to the VAT threshold. While VAT registration would allow the driver to claim the VAT back on costs, it would make a noticeable dent in the end- of-year profit figures.

“Taxi operators on the other hand distinguish themselves as an 'Agent' to get around this VAT problem. This means the Fare they receive is passed through their account as the driver's money (like Gett payouts for example), and only the commission the operator receives is liable as This means they can have a much higher turnover before registration for VAT.

“If VAT for the Taxi industry were slashed to zero per cent, it would be a massive win for taxi drivers because it would allow them to reclaim VAT on such items as fuel. Butchers who are zero rated, register as soon as they start trading to claim VAT back on costs, and drive up profits. If a zero per cent rating was given to taxi drivers it would undoubtedly cause a massive rush to be VAT registered. It would mean drivers could claim the VAT back on a shiny new TXE too. We think this would be an extremely generous gift from the Government on top of the £7,500 grant that they have been running too and this is unlikely to happen.

“A more likely option is for the taxi industry to be given an exemption from VAT. This differs from zero per cent VAT as businesses that are exempt are not able to claim VAT on the cost of their purchases. Essentially this means that the income and expenses would remain as they are now, with no VAT being paid to HMRC on sales or being reclaimed on purchase no matter if the turnover went over £85,000.

“Both Limited Companies and Self Employed can be registered for VAT, so there is no escaping the VAT net!”