Treasury rejects any immediate plans to reduce VAT for ‘independent taxi operators’

The Treasury has rejected any immediate plans to reduce VAT for ‘independent taxi operators’.

Thomas Tugendhat, Chair of the Foreign Affairs Committee, asked the Chancellor of the Exchequer what discussions ministers and officials in the Treasury have had with independent taxi operators on reducing VAT from twenty percent to just five percent.

However, the Treasury were quick to pour water on the idea stating the department had “no current plans to change the VAT treatment of such goods”.

Jesse Norman, the Financial Secretary to the Treasury, said: “The current structure of VAT rates raises a significant amount of revenue for the Government, raising over £130 billion in 2018/19. This plays an important part in funding the Government's spending priorities including hospitals, schools, and defence.

“Changes to the current rate of VAT on the transport service provided by independent taxi operators would come at a cost to the Exchequer, and that cost would have to be balanced by increased taxes elsewhere, or reductions in public spending.

“Although the Government keeps all taxes under review, the Government has no current plans to change the VAT treatment of such goods.”

In September, the Society of Motor Manufacturers and Traders (SMMT) had called for a similar government commitment based on electric vehicle (EV) purchases.

SMMT called for a long-term commitment to VAT incentives and the continuation of the Plug-in Grant for Zero Emission Capable (ZEC) vehicles.

A VAT exemption on ZEC cars and taxis could reduce the upfront price of a family car by an average £5,500 for battery electric cars and £4,750 for plug-in hybrids, and for an SUV by £9,750 and £8,000 respectively.

At present, VAT is 20% of the car’s value. With EVs costing more than internal combustion vehicles, buyers are currently paying more tax to make the move to cleaner vehicles.

Taxi drivers have long debated whether or not they should be paying VAT, especially those offering Wheelchair Accessible Vehicles (WAV).

Generally, VAT has to be paid on all goods and services. However, in certain circumstances there’s relief from paying VAT on a limited range of goods and services for disabled people.

For some time there has been VAT relief for those purchasing a vehicle adapted to carry wheelchairs. According to HMRC, individuals purchasing a vehicle on behalf of a disabled wheelchair user can claim relief if the supply of a ‘qualifying motor vehicle’ has been: 

  • designed to enable the disabled wheelchair user to travel in it, or

  • substantially and permanently adapted to enable the disabled wheelchair user to travel in it and the adaptation is necessary to enable that person to travel in the vehicle.

Some might think that on paper taxi drivers should, or could, be offered tax relief on WAV taxis. This would knock over £9,000 off the new LEVC TX taxi and nearly £11,000 once the EV grant ends.

However under EU rules, the question around VAT exemption for taxis was quickly put to bed following a question put forward by the then Parliamentary Under Secretary of State at the Department for Transport, Andrew Jones MP, in October 2016.

Carly Nimmo, of VAT & International Excise at HM Treasury, replied on the MP’s behalf saying: “There is unfortunately no provision within the EU VAT rules to introduce a zero rate or exemption on the purchase of taxis and therefore the government cannot remove the VAT on such purchases.

“While the UK remains a member of the EU, we will continue to meet our obligations, including on the agreed rules on the application of VAT.” 

With Brexit looming, the debate could spark into life again, especially if the Government wishes to see more environmentally friendly wheelchair accessible electric taxis on the streets in the UK.

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