VAT Threshold Increase: A boost for hard working self-employed taxi drivers facing rising costs

Image credit: DALL.E (AI generated)

At the Spring Budget 2024 the Government announced a significant update to the Value Added Tax (VAT) thresholds, a decision that has been met with approval from the nation's taxi drivers.

Starting from 1 April 2024, the threshold for VAT registration will increase from £85,000 to £90,000, with the deregistration limit also seeing an uplift from £83,000 to £88,000. This adjustment, applicable across the UK including Northern Ireland, aims to alleviate the financial pressure on small business and the self-employed which includes cabbies who have been hit hard by escalating operating costs.

The decision comes at a critical time for taxi drivers, some of whom have been compelled to halt work due to the looming threat of exceeding the current VAT threshold, which could trigger a daunting tax bill. The change is therefore expected to benefit some hard-working cabbies, providing them with much-needed leeway to navigate through the challenges of increased business expenditures without the added burden of a higher tax obligation.

Several factors have contributed to the financial strain on taxi drivers. The widespread adoption of third-party hailing apps, for instance, has meant that drivers only take home 80-85% of app-based fares, yet the entirety of the fare counts towards their VAT threshold. Furthermore, the shift towards card payments necessitates the adoption of card payment solutions, adding to their operational costs. Notably, the surging prices of fuel, electricity, vehicle maintenance, and insurance, compounded by a significant increase in taxi tariffs, have forced drivers to push for higher revenues to sustain their earnings and livelihoods.

The increase in taxi tariffs, while intended to offset rising costs, has also inadvertently edged drivers closer to the VAT registration limit, which had previously remained unchanged for two years, despite a 20% hike in some tariffs. That static £85,000 threshold had placed additional strain on taxi operators, with the potential of crossing the limit by a mere £1 leading to an overwhelming tax bill of over £10,000.

This budgetary adjustment is a welcome development for the hard-working cabbies across the UK, providing a buffer against the VAT threshold and allowing them to continue their operations without the fear of further tax liability.