TAXI VAT EXEMPTION: “Taxis are neither charities nor exclusively serve wheelchair users” says Treasury

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The Treasury have cooled on Transport for London (TfL) suggestions that VAT exemption should be extended to wheelchair accessible black cabs.

In a recent correspondence with Andy Lord, Commissioner of Transport for London (TfL), Nigel Huddleston, Financial Secretary to the Treasury, outlined the Government's position on the application of Value Added Tax (VAT) to Wheelchair Accessible Vehicles (WAVs) used by taxi drivers. Huddleston emphasised the importance of VAT as a significant revenue source, contributing an estimated £173 billion in the 2023/24 fiscal year, which supports vital public services including the NHS, education, and defence sectors.

Huddleston explained that the standard 20% VAT rate applies broadly across goods and services, with few exceptions due to strict legal and budgetary constraints. He highlighted that while a zero VAT rate applies to WAVs purchased by disabled individuals or charities for personal use, this exemption does not extend to taxis, even those serving disabled customers. This is because taxis are neither charities nor exclusively serve wheelchair users.

However, Huddleston noted an avenue for relief, stating that taxi drivers who are VAT registered can reclaim the VAT on their vehicles. This distinction underlines the Government's approach to balancing fiscal responsibilities with support for accessibility services, though it maintains the tax burden on a sector providing essential services to disabled individuals.

The clarification from Huddleston comes amid ongoing discussions about the financial pressures facing the taxi industry, particularly those affecting the availability and operation of accessible transport services.

In many regions taxi drivers are forced to buy wheelchair accessible vehicles as part of strict licensing guidelines. The taxi industry broadly supports the idea of fully inclusive transport options in large urban cities, but it is then individuals that are investing in the local infrastructure, not the Government or local authorities, without having a choice.

Huddleston wrote: “I would like to begin by noting that, as you will be aware, VAT is a broad-based tax on consumption and the 20 per cent standard rate applies to most goods and services. While there are exceptions to the standard rate, these have always been limited by both legal and fiscal considerations. It is important to note that VAT is the UK’s third largest tax and is forecast to raise £173 billion in 2023/24, helping to fund key spending priorities. As you will know, any reduction in tax paid is a reduction in the money available to support important public services, including the NHS, education and defence.

“In response to your first point on the VAT treatment on WAVs – a zero rate of VAT is maintained when a WAV is purchased by a disabled person for their personal use, or by a charity that will make the vehicle available to disabled people. Although, as you note, taxis provide transportation services to disabled customers, they are not charities and not all their customers are wheelchair users. Therefore, this VAT relief does not extend to taxis that are WAVs. It is worth noting, however, that if a taxi driver is VAT registered, they are eligible to reclaim the VAT paid on their vehicle.”