VAT on Taxis

Fares charged to passengers for taxi or private hire journeys are liable to VAT at the standard rate. VAT is also charged on any additional charges for things like baggage and waiting time.

VAT is not charged on tips voluntarily given by passengers as they are not regarded as payment for a supply and are outside the scope of VAT.

Why wasn’t I charged VAT on my taxi fare?

Taxi drivers who own or rent their own vehicle and operate it on a self-employed basis are considered to be running their own business. They can provide transportation services directly to their own passengers or work for another taxi company under a service contract.

If the driver's turnover is below £90,000 in a 12-month period, they are not required to register for VAT as their turnover falls below the VAT registration threshold. Taxi drivers who are not registered for VAT cannot add VAT to the cost of their services.

Why am I not always charged VAT on taxi services provided by a VAT-registered taxi firm?

If all the firm’s drivers are employees, the taxi firm is acting as a principal and will charge VAT on the full value of the fare charged. However, if the drivers are self-employed, the firm may, depending on the agreements with the drivers, be acting as their agent.

A taxi firm acting as an agent is not providing transportation services to passengers. It is the drivers who are providing the services, therefore, VAT is only charged on the taxi fares if the driver is registered for VAT.

If the drivers are not registered for VAT, the taxi firm cannot charge VAT or issue a VAT invoice on the driver’s behalf for the customers’ fares.

A taxi firm may perform 2 different types of work:

• cash work, where individual customers pay cash to the driver on completion of the journey;
• account work, where regular customers, particularly companies, are allowed to settle their bills periodically.

Taxi firms often act as agents for cash work and only charge VAT if the driver is VAT registered but act as a principal for account work and charge VAT because the drivers are employed by the firm for this type of work.

Some taxi firms employ drivers and act as a principal for those drivers whilst also using self-employed drivers and acting as an agent for those drivers. Again, if the self-employed drivers are not VAT registered, no VAT will be charged. This means that the same firm can be used for taxi journeys and some fares will be subject to VAT and some will not.

Reclaiming VAT on taxi fares

VAT incurred by a business on taxi fares can be reclaimed if the journey is for a business purpose, for example, site visits or travel to meetings with clients/customers. However, it is important to obtain a VAT invoice to confirm that VAT has been charged.