PERFECT STORM: Most minicab operators could be forced to raise fare prices 20% to help cover VAT

Most minicab operators in London could be faced with raising their fares by 20% to cover new VAT liabilities shifting away from its drivers.

According to black cab representatives this could now be the end of ‘ludicrously cheap fares’ as the sector faces a perfect storm which includes investing in more expensive greener vehicles and a slow down in cheap labour.

The capital’s biggest operator, Uber, could face paying VAT on all journeys as early as April 2022 according to trade sources. Other operators are likely to follow soon after.

Steve McNamara, LTDA General Secretary, said in TAXI Newspaper: “On the subject of fares, our rivals in the private hire sector have bigger concerns following the judgment of the High Court that it was unlawful for a private hire operator (Uber) to act as an 'agent' and that they must contract directly with drivers and passengers.

“This made all private hire operators in London employers of drivers and, for tax reasons, the principle, rendering them liable to charge 20% VAT on every fare! Even though the judgement was only ten weeks ago, the clock is ticking and TfL have written to every single PH operator asking that they amend their Terms and Conditions to reflect that the customers contract is with the operator. This automatically confirms the status of the operator as the ‘principle’ and thus compelled to charge VAT on fares.

“All the rumours and press reports indicate that Uber will be the first to start charging VAT from April, and it is presumed they will simply pass on the 20% charge to customers with a fares hike. This will make it very likely the other big operators will all do the same, increasing fares across the industry. Smaller operators with different business models, where the driver pays a weekly rent rather than a percentage commission, may be able to absorb some of the 20% VAT, but these would be very few and far between and the 20% fares hike will almost certainly be industry wide.

“The only advantage the minicab trade has ever had over us was their ability to charge ludicrously cheap fares courtesy of an unlimited unskilled cheap workforce, cheap vehicles and dodgy tax arrangements.

“The pandemic, coupled with increased licensing standards (topographical and English language requirements) decimated their ability to quickly recruit drivers prepared to work long hours for low pay. The clean and green licensing requirements for all new private hire vehicles pushed up the price of their cars by at least a third, and the requirement for all drivers to be registered with HMRC (from April) will bring many of them into the welcoming arms of the tax man for the first time.

“Already many more customers are now recognising that our premium, gold-plated, world-class service is real value for money, and we are becoming the first choice for many who previously reached for their phone instead of raising their arm when they wanted a cab. Another 20% additional cost on the price of a second class minicab ride squeezed into the back of a Prius can only help convince more people of the merits of using a proper taxi!”

Uber and other private hire operators look likely to charge customers 20% VAT on all rides taken in the UK after a High Court ruling in December 2021.

The High Court judgment ruled London private hire operators must make contracts with their customers, rather than the drivers on the platform.

Lord Justice Males and Mr Justice Fraser handed down the ruling which private hire driver representatives, App Drivers and Couriers Union (ADCU), claimed the misclassification has been used to shield operators from employer liability, legal liability to their customers and for payment of VAT.

The ruling is likely to fundamentally restructure the private hire industry in London as almost all 1,832 TfL licensed operators have used this model of operation since the industry first came under regulatory supervision in 2002.

Licensed black taxi drivers, who work independently and not as a worker for an operator, will not be affected by the ruling and will not charge customers VAT for their services provided.