HMRC sets out specific guidance regarding the application of VAT if you are in the taxi and private hire car trade. VAT Notice 700/25 – How VAT applies to taxis and private hire cars – applies.
Private hire cars include mini-cabs. The notice is relevant if you are:
- a driver who owns or rents a vehicle (an owner driver)
- the owner of a business which operates a number of vehicles
- operating a taxi association
The fares a driver charges to their passengers for taxi or private hire journeys are liable to VAT at the standard rate. This also includes any additional charges for things like baggage and waiting time.
Other sources of income liable to VAT may include:
- referral fees received from another taxi firm
- charges for supplying fuel or the rental of vehicles and radios to drivers
- administration charges to customers
Tips or gratuities voluntarily given by passengers are not regarded as payment for a supply and are outside the scope of VAT.