How VAT applies to taxis and private hire cars (VAT Notice 700/25)

Find out how to apply VAT if you're in the taxi and private hire car trade.


This notice cancels and replaces Notice 700/25 (May 2002). Details of any changes to the previous version can be found in paragraph 1.1 of this notice.

1. Overview

1.1 What this notice is about

This notice explains how VAT applies to the taxi and private hire car trade. The contact address has been updated and new paragraphs explaining your rights and obligations and how HMRC uses your information have been added. The technical content has not changed from the May 2002 edition.

Private hire cars include what are often referred to as mini-cabs. You should read this notice if you’re:

  • 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

1.2 What’s liable to VAT

The fares you charge to your passengers for taxi or private hire journeys are liable to VAT at the standard rate. This also includes any additional charges you may make for things like:

  • baggage
  • waiting time

Other sources of income liable to VAT may include:

  • referral fees received from another taxi firm (where, for example, you’ve passed business on to them)
  • charges for supplying fuel or the rental of vehicles and radios to drivers
  • administration charges to customers (for example where you provide them with periodic details of the journeys they’ve made)

Tips or gratuities voluntarily given by passengers are not regarded as payment for a supply and are outside the scope of VAT.

If your charges are VAT inclusive, you can work out the VAT element by multiplying the fare, including any extras, by the VAT fraction. You can find out more about the VAT fraction in VAT guide (Notice 700).

1.3 Input tax

There are special input tax rules that apply to VAT charged on the purchase of a motor vehicle or the purchase of road fuel for business use. Guidance on how these rules apply to taxis and private hire cars can be found in VAT on motoring expenses (Notice 700/64).

2. Drivers of taxis and private hire cars

2.1 Supplies you make as an independent self-employed driver

If you’ve bought or rent your own vehicle and operate it on a self-employed basis, you’ll normally be in business on your own account. This means that you’ll be making taxable supplies in the form of:

  • transport supplied direct to your own passengers
  • your services to another taxi business where you supply them under a contract for services

Where you supply transport to your own passengers you may use the agency services of a taxi business see section 3, or a taxi association see section 4 to obtain customers for you. But if you drive for a taxi or private hire business as its employee, you are not considered to be in business for VAT purposes.

2.2 When you must register for VAT

If you’re making taxable supplies you must register for VAT if the full amount you’re paid for those supplies exceed the VAT registration threshold. To calculate this you must add back any amounts, such as vehicle and radio rentals or agency charges, that the taxi firm deduct before they pay you. If you’re an owner driver registered for VAT, you must issue a VAT invoice to any of your VAT-registered customers who ask for one.

3. Businesses that engage drivers

3.1 The types of business this covers

This includes all businesses, whether they’re a sole proprietorship, partnership or limited company, which either:

  • employ staff to drive taxis or private hire-cars
  • take on self-employed drivers to work under a contract for services

3.2 Accounting for VAT

If you run a business of this kind, then unless you’re acting as an agent for any of your drivers for some, or all, of the work they do, you’re a principal in making the supply of transport to the customer. In working out the value of your supply you must include:

  • the full amount payable by the customer before deducting any payments made to your drivers
  • any fares you (as the sole proprietor, director or partner) take if you drive for the firm
  • the full fares payable by passengers even if you sub-contract work to an independent business or owner driver
  • any referral fee you get from other taxi businesses

3.3 Agent or principal

As a taxi or private hire car business you may perform 2 different types of work. These are:

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

If all your drivers are employees, you’re a principal and must follow paragraph 3.2 when accounting for VAT. But, if your drivers are self-employed you may, depending on the agreements you have with them, be acting as their agent for cash work and in some cases for account work as well.

3.4 Agent for both cash and account work

Whether you’re acting as an agent depends on the terms of any written or oral contract between you and the drivers, and the actual working practices of your business. For further information on how to decide whether you’re acting as an agent or a principal see the section dealing with agents in VAT guide (Notice 700). Typically in acting as an agent for your drivers you’ll:

  • relay bookings to the drivers (usually on a rota basis) for an agreed fee
  • collect fares on their behalf from account customers

You could also provide them with other services such as the hire of cars or radios.

If you act as an agent, the drivers are entitled to the full fares paid by the customers, even though the charge for your agency services may be deducted from the account fares you collect for them.

3.5 Accounting for VAT if you act as an agent for both cash and account work

As an agent your supplies can include if you’re registered, you must account for VAT on
a supply of agency services to your drivers amounts you receive for this from your drivers (including any additional charges you may make such as for vehicle or radio rental)
administration services to account customers your administration charge to account customers (if, in invoicing account customers, you show an administration or similar charge on the same invoice as fares collected on behalf of the drivers, you must itemise separately the supplies on which VAT is chargeable)

When you’re acting as their agent, the drivers make the supplies of transport. So VAT is only due on the fares payable by the customers if the driver is registered for VAT.

If the drivers are not registered for VAT, you must not charge VAT or issue a VAT invoice on their behalf for the customers’ fares.

For further information about how you should account for VAT if you issue invoices on behalf of VAT-registered drivers, see the section dealing with agents in VAT guide (Notice 700).

3.6 Agent for cash work and principal for account work

You may, depending on the terms of any written or oral contract between you and the drivers and the actual working practices of your business, be acting as both:

  • an agent for the drivers for the cash work they perform, see paragraph 3.4
  • a principal for the work done for account customers, see paragraph 3.2

But, if you are to account for VAT on this basis you must be able to satisfy us that:

  • the arrangements are reflected in the terms agreed with your drivers
  • there is a genuine difference in the operation of the cash and account sides of your business

3.7 Accounting for VAT on the agency services

If you operate as an agent for cash work and a principal for account work, you must still account for VAT at the standard rate on the full charge to the drivers for the rental of vehicles, radios or other services you supply to them. This applies even if you either:

  • offset the charge when calculating the rate due to the drivers for account work they perform for you
  • deduct it before paying them for account journeys

4. Taxi associations

4.1 What’s meant by taxi association

Some independent and self-employed taxi drivers form taxi associations to provide services to the individual driver members. These services can include:

  • operation of a booking office and radio link
  • hire of radios
  • provision of rest facilities

4.2 Accounting for VAT

Supplies to members are always standard-rated whether they pay for them by periodic subscription or by deduction or offset from fares collected on the members’ behalf. Taxi associations must be registered for VAT if the total of all such charges, together with the total charges for any other supplies they make, exceed the VAT registration threshold.

Additional supplies can include an administration fee for services supplied to customers, such as giving a breakdown or analysis of journeys made, see paragraph 3.5 for details about invoicing for charges of this kind.

5. Selling your taxi or private hire car

5.1 If you sell your business as a going concern

If you dispose of your taxi or private hire car because you sell or transfer your business as a going concern, you will not be making a taxable supply provided certain conditions are met. You can find out more about this in VAT Notice 700/9: transfer of a business as a going concern.

5.2 Selling just the vehicle

If you and you then you
sell a taxi or private hire car have reclaimed input tax before must account for VAT on the full selling price
sell a taxi or private hire car have not claimed input tax before (for example, the vehicle was bought from a private individual) may, as long as you meet the conditions, use the second-hand margin scheme for the onward sale of the vehicle - you can find out more about this in VAT Notice 718: margin scheme and global accounting
sell a taxi include a local authority hackney carriage licence plate are making a single supply of goods. The full selling price for which is the total amount charged for the vehicle and licence plate. You must account for VAT as already explained above. But, licence fees paid to a local authority to operate a taxi cannot be included in the purchase price of a vehicle when calculating the VAT due under the second-hand margin scheme

5.3 If you part-exchange a vehicle

If you exchange, or trade-in, a taxi or private hire car when you buy a replacement, you must account for VAT in the same way as if you had sold the old vehicle for cash. You must treat the exchange or trade-in allowance you receive as the selling price.

Your rights and obligations

Read Your Charter to find out what you can expect from HM Revenue and Customs and what we expect from you.

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If you need general help with this notice or have another VAT question you should phone our VAT helpline or make a VAT enquiry online.

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Published 19 September 2016