VAT THRESHOLD: Rising operating costs forcing grafting cabbies to STOP WORKING or face huge tax bill
Rising operating costs are pushing some hard working taxi drivers to STOP WORKING due to VAT threshold concerns.
Increases in business running costs and the cost of living has forced many drivers to earn more to maintain the same standard of living. However, the increased turnover means some hard working cabbies are now approaching the frozen VAT threshold forcing them to stop earning any more money or face an extra tax bill.
Taxi drivers can only charge the metered price and can not pass on VAT to the passenger even when registered.
What are the rules?
The fares charged to passengers for taxi or private hire journeys are liable to VAT at the standard rate. This also includes any additional charges made for things like baggage and waiting time.
According to gov.uk, if cabbies buy or rent their own vehicle and operate it on a self-employed basis, they’ll normally be in business on their own account. This means that they'll be making taxable supplies in the form of:
transport supplied direct to their own passengers
their services to another taxi business where they supply them under a contract for services.
Where drivers supply transport to their own passengers they may use the agency services of a taxi business or a taxi association to obtain customers for them.
If however the cabbie drives for a taxi or private hire business as its employee, they are not considered to be in business for VAT purposes.
Taxi drivers MUST register for VAT if they are making taxable supplies that exceed the VAT registration threshold.
What is the VAT threshold?
The VAT registration threshold for self-employed individuals is currently set at £85,000. This means that if your taxable turnover exceeds £85,000, you must register for VAT.
The taxable turnover threshold, which determines whether a person must be registered for VAT, will remain at £85,000 until 31 March 2024.
What costs are rising for taxi drivers?
There are several reasons why taxi drivers are being forced to turnover more revenue to maintain profit or sustain a similar living standard during the cost of living crisis. These include:
Increased reliance on 3rd party hailing apps. While taxi drivers only receive 80-85% of an app fare after commission, the full 100% gross fare is used in calculating revenues for VAT threshold purposes.
Increased number of people paying by card. The shift to card payments means taxi drivers must front up the cost of card payment solutions.
Increase in fuel and electricity. Drivers must earn more revenue to cover the rising cost of fuel.
Increase in vehicle costs and insurance. Drivers must again earn more revenue to
Increase in taxi tariffs. Whilst this is welcomed by cabbies to cover rising costs, some tariffs have increase 20% over the last two years. The VAT threshold has remained frozen in that same time period causing concern.
Taxi drivers approaching the VAT are forced to stop working. Going just £1 over the threshold could mean drivers facing an additional eye watering tax bill upwards of £10,000.
