.jpg)
DISCOUNT THE TIPS, ADD THE APPS: How taxi driver tips are accounted for when it comes to VAT thresholds
Genuinely voluntary tips from passengers do not count towards a taxi driver’s VAT registration threshold, but the £90,000 threshold is based on taxable turnover, so drivers can cross it well before their business makes £90,000 in profit.
The compulsory registration threshold is exceeded when a business’s taxable turnover goes above £90,000 over a rolling 12-month period. A separate test applies if a business expects its taxable turnover to exceed £90,000 in the next 30 days alone.
The rolling test is not tied to the tax year, calendar year or accounting period. Drivers should review their taxable supplies at the end of each month, looking back over the previous 12 months. A seasonal surge in Christmas, airport or school work can therefore remain part of the calculation after the fares have been spent.
For VAT purposes, turnover is not necessarily the amount paid into a driver’s bank account. HMRC’s taxi and private hire guidance says an independent driver making taxable supplies must generally count the full amount paid for those supplies. Deductions for platform commission, vehicle rent, radio charges or agency fees may need to be added back.
For example, if passengers pay £100,000 in fares and a booking platform keeps £20,000 in commission, the driver’s taxable turnover may be £100,000, rather than the £80,000 received. That depends on the contractual arrangement and working practices. A platform’s role as agent or principal matters, and the flow of payments alone does not settle the question.
An operator acting as principal may need to include the full fare paid by customers before deducting payments to drivers. The calculation may also include full passenger fares on subcontracted work and referral fees received from other taxi businesses. On this point and all things tax related, always check with your accountant.
While voluntary tips are outside the scope of VAT, ordinary taxi and private hire fares are standard-rated. Waiting time, baggage charges and similar additions are also generally liable to VAT. The treatment depends on whether a payment is genuinely optional or is part of the charge for the journey.
Crossing the threshold can affect prices and margins. If a VAT-registered driver keeps a £12 VAT-inclusive fare unchanged, £2 represents VAT at the standard rate, leaving £10 before other costs. Passing VAT on to passengers may be possible for pre-booked private hire work, but regulated taxi tariffs can limit changes to metered fares. Corporate customers that can reclaim VAT may also respond differently from private passengers.
Registration allows recovery of qualifying input VAT on business purchases, subject to the usual rules and restrictions, including those affecting cars and fuel. The benefit will vary according to the business: a vehicle-owning fleet, a driver who rents a vehicle and a low-overhead booking business may have very different costs and potential VAT recovery.
Voluntary registration below £90,000 may suit businesses serving VAT-registered corporate clients. It may be less attractive to drivers whose customers are mainly private passengers, particularly where unregistered competitors can offer lower prices.
Drivers who have already exceeded the threshold generally have 30 days from the end of the month in which it was crossed to register. If a business expects to exceed £90,000 in the next 30 days alone, registration takes effect from the date that expectation arose. Late registration can leave a driver liable for VAT on fares that were not increased to cover it.
Monthly records should capture gross passenger fares and separately identify tips, commissions, rents, referral fees and other deductions. App statements showing only net payouts may not provide enough information to monitor taxable turnover accurately.
The £90,000 figure is not a profit allowance. It is a threshold based on taxable supplies, before many of the trade’s major operating costs have been paid. VAT treatment can depend on contracts and working practices, so drivers and operators may need individual tax advice.
