VAT threshold concerns for London taxi drivers as costs spiral pushing revenue higher to make profit

The VAT threshold remains a concern for hard working London taxi drivers, despite its increase, ahead of next year’s tariff review.

On 1 April 2024, the VAT registration threshold increased from £85,000 to £90,000. This is the first adjustment since the threshold was frozen in April 2017.

Despite the welcomed change, there is however continued concerns for London's full-time taxi drivers, some of whom remain perilously close to the new threshold. With a tariff increase expected in April 2025 to offset rising costs, some drivers could surpass this limit unless they reduce their working hours.

Taxi drivers, unlike many other businesses, cannot charge VAT to passengers. Instead, they must absorb the cost themselves, paying VAT on all journeys if their revenue exceeds £90,000. The current economic climate has pushed many drivers to increase their earnings just to maintain their standard of living. Rising business costs and living expenses have compelled these drivers to earn more, pushing them nearer to the VAT threshold and forcing a choice: reduce earnings or face a significant bill.

This revenue threshold poses several challenges for hard working cabbies. Third-party hailing apps have become increasingly prevalent, with drivers receiving only 80-85% of the fare after app commission, yet the gross fare is used to calculate VAT-relevant revenue. The growing preference for card payments requires drivers to cover the cost of payment solutions, adding another layer of expense.

Additionally, the rising cost of fuel and electricity means drivers must earn more to cover these basic operating costs. Vehicle and insurance costs have also increased, necessitating higher earnings just to break even. While the 22% increase in taxi tariffs over the last three years has helped cover some rising costs, this benefit may be offset by some by the mere £5,000 rise in the VAT threshold during the same period. This disparity has raised concerns among cabbies who feel squeezed by the combined pressures of increased operational costs and the looming threat of an additional tax burden.

As drivers navigate these financial pressures, the increased VAT threshold represents another hurdle in maintaining their livelihoods amidst the cost of living crisis. The delicate balance between earning enough to sustain their business and not exceeding the VAT threshold adds complexity to an already challenging profession.

For many, the decision may come down to reducing hours and, consequently, real world pay, or finding ways to increase efficiency and manage costs more effectively.