AUTUMN BUDGET: Why any thoughts around a lower VAT threshold would hit taxi drivers hard
- Perry Richardson
- 4 hours ago
- 2 min read
Calls to lower the UK’s VAT registration threshold could have serious financial consequences for many self-employed taxi drivers who are unable to pass the added costs on to passengers.
The Resolution Foundation recently proposed reducing the VAT threshold from £90,000 to £30,000 as part of efforts to raise extra revenue and improve competition among small businesses. While the policy might appear straightforward, the taxi trade would argue it unfairly penalises drivers whose income levels are fixed by local authority tariffs.
Unlike private hire drivers, who can often adjust their pricing or work for operators that handle VAT centrally, licensed taxi drivers operate under a regulated meter set by councils. This means fares cannot exceed the maximum tariff, regardless of any change in costs or tax obligations.
If the threshold were to fall, thousands of full-time taxi drivers taking above £30,000 in revenue would be forced to register for VAT. That would require them to pay 20% VAT on every fare they collect, even though they cannot legally increase the fare to recover the extra charge. The result would be a huge direct cut in take-home pay.
It’s estimated that for a driver turning over around £45,000 a year, VAT liability could cost roughly £7,500. After fuel, maintenance, insurance and licence fees, such a reduction could make many operations financially unviable.
If any drastic reduction in VAT thresholds were to arrive, councils would have little choice but to review tariffs to cover the shortfalls. However, revising fare structures is a slow process requiring public consultation and local approval. Any increases would also risk discouraging passengers already facing higher living costs.
Economists note that freezing the threshold, rather than cutting it, would still gradually draw more drivers into VAT registration over time due to inflation. A reduction to £30,000 would accelerate that process sharply and could deter new entrants to the trade and certainly make it hard to retain cabbies already working in the industry.
For now, the sector waits to see whether any changes materialise. There are also murmurings of a VAT threshold increase to prompt more growth from those sitting just outside the VAT limits, which would be welcomed by the trade.
A sharp drop in the VAT limit could leave many taxi drivers paying thousands more in tax each year without any ability to raise their fares – a situation that would simply be unsustainable.
