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HMRC internal manual

VAT Taxable Person Manual

Particular trades: taxi and hire cars: are there any clear contractual differences between cash and account work?

Many taxi firms engage in two different types of work:

  • cash work, where individual customers pay cash to the driver upon completion of the journey; and
  • account work, where larger bodies - predominantly companies and institutions - use taxis frequently and are thus allowed to settle their bills periodically.

Although the firm may claim otherwise, there will rarely be any genuine differences between the operation of the two types of business: most firms either always act as agent for the drivers or always supply the transport themselves as principal while engaging the drivers to work for them.

A genuine difference in the basis of payment could be one indication of a contractual distinction between cash and account work. An example is where drivers are paid a fixed hourly rate for account work, but their payment for cash work is directly related to takings; for example, an agreed percentage split between firm and driver. However, many firms will allow drivers to keep all cash takings, but pay them a percentage or mileage rate for account work. This is not a genuine difference in the basis for payment, but simply a recognition that account work requires more administration on the part of the firm, thus necessitating that a charge be made.

Two tribunal cases have considered whether there were genuine differences between the operation of cash and account work and have concluded that there were not. In both Triumph and Albany Car Service (LON/80/115) and Frederick George Carless (MAN/89/673), the cab firm was found to be agent for the driver for both cash and account work. The decision in Frederick George Carless was confirmed in the High Court (QB[1993] STC 632).

There is one contrary decision: Camberwell Cars (LON/92/2176A). Here, we have accepted the tribunal decision that the cab firm was supplying account customers as principal, but acting as agent for the drivers in respect of cash work.

The company employed drivers who used their own cars. It also had a considerable number of account customers and encouraged the drivers to undertake such work. The company accepted that it was principal for the account work but did not accept that it was principal for those who paid cash. HMRC assessed the company in respect of this cash work and the company appealed on the basis that the relevant supply was made by the driver as an individual and not by the company. The tribunal allowed the appeal, holding on the evidence that there was a real distinction between the conduct of the account work and the cash work, and that the company accepted telephone enquiries from casual cash paying customers on behalf of the drivers and not in the furtherance of its own business. This case shows that it is not impossible for there to be a genuine difference in the operation of the two sides of the business but each case will depend very much on its own facts.