Taxi drivers continue to push for VAT reform that could alleviate financial burden and deliver public availability

Pressure is building within the taxi and private hire vehicle (PHV) sector for reform of the value-added tax (VAT) system. Many drivers, particularly in London, are calling for VAT relief to alleviate the financial burden faced by those who meet or exceed the current VAT threshold of £90,000 in annual turnover.

Although this issue has long been a point of contention within the industry, there is still no indication that the Government is willing to act, especially in the face of a significant public finance deficit.

Speaking during a recent Q&A interview with TaxiPoint, Layla Barke-Jones, a Dispute Resolution Partner at Aaron & Partners, spoke of the ongoing calls for VAT reform. She noted that operators, especially those using a business model allowing them to contract as principal, are leading the charge for these changes. “Yes, there continues to be a call for these changes, especially from those in London and those using a business model that allows them to contract as principal,” said Barke-Jones.

“However, whether the Government will act on these calls remains uncertain, especially in light of the recently highlighted £20 billion gap in the public finances.”

Under current VAT regulations, any taxi driver with a turnover exceeding £90,000 must pay VAT. However, unlike most businesses that can pass VAT costs onto their customers, taxi drivers cannot. The fare passengers pay is fixed to the metered price, and there is no scope to add VAT on top of that amount. For drivers already working long hours to make ends meet, the prospect of absorbing an additional 20% tax can be a serious financial strain.

As a result, many drivers deliberately limit their working hours or take steps to stay below the VAT threshold. For those who do reach it, the requirement to pay VAT has significant consequences on their earnings.

This situation not only impacts individual drivers but also has wider effects on the availability of taxis and private hire vehicles for the public. Drivers may be discouraged from taking on more work during busy periods, knowing that their efforts will be penalised financially if they cross the threshold.

The push for VAT exemptions or reduced VAT rates for taxi drivers is based on the argument that such measures could increase productivity and encourage more drivers to work through busy times, ultimately benefiting passengers as well. VAT reform could make it more viable for drivers to continue working without concern over tax liabilities that significantly cut into their take-home pay.

The debate surrounding VAT reform in the taxi industry has been ongoing for some time, with many pointing out that the current system places an unfair burden on drivers who are just trying to earn a living. For smaller operators and individual drivers, the additional cost can mean the difference between running a profitable business and facing financial hardship.

However, as Barke-Jones pointed out, any potential changes will be difficult to implement given the current economic situation. The UK Government is facing a £20 billion gap in public finances, which makes the likelihood of tax breaks or VAT exemptions being introduced in the near future slim. Ministers may be reluctant to take steps that could reduce tax revenues further, especially at a time when public finances are under such pressure.