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Taxis and Vat please help
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# 1
DUNTAXI
Old 19-02-2008, 10:52 AM
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Default Taxis and Vat please help

As a Taxi firm you have a meter fitted in the car that has a rate set by the local council ,if you charge more than the amount shown on the meter you can be prosecuted by the council in court .
When you start you will be below the VAT threshold and not be liable to charge the consumer the TAX.
When you go over the limit they say you should then register but how do you charge the consumer the Tax ( the HMRC state that VAT is a tax on consumer spending ) when you cannot charge more than the meter rate or be taken to court by the Council for overcharging.
The tax surely does not come out of your pocket your business would struggle and go out of business .
Many councils set the rate with no mention to vat and some say where applicable ?????? which seems stupid it either is or isn't if it is the unregistered are overcharging .
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# 2
Pennywise
Old 19-02-2008, 1:22 PM
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Quote:
Originally Posted by DUNTAXI View Post
The tax surely does not come out of your pocket.
Yes, that's exactly how it works. BUT, at the same time, you can reclaim the VAT that you pay on fuel, stationery, vehicle repairs, etc., so it's not as bad as it seems.

Your point is exactly why lots of small businesses don't expand, as they have to stay small to stay under the threshold. Small business organisations have been lobbying for a much higher threshold for years.
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# 3
JasonLVC
Old 19-02-2008, 1:50 PM
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As Pennywise states, you would be restricted to charging the same amount for a journey but being VAT registered, 17.% of that charge will now go to HMRC thus reducing your operating profits.

You'd have to weigh up if the VAT you recover on tyres, fuel, snacks and repairs is more or similar to the VAT you pay over to HMRC for the fares you have taken.

Not Registered -
Charge £10.00 for journey. Costs £5.00 running costs = £5 profit.

VAT Registered -
Charge £10.00 for journey of which now £1.48 is VAT.
Costs are now £3.50 due to recovering £1 VAT on running costs.
Journey income = £10.00 - £1.48 VAT = £8.52
Costs = £4.00
Profit = £8.52 - £3.50 - £5.02 (an actual increase in profits of 2p)

But will all depend upon just what expenditure/overheads you have as to whether this basic calculation works in your favour or not.
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# 4
DUNTAXI
Old 19-02-2008, 4:08 PM
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Default Its Robbery

I have been involved in the business for 20 years and see people going bancrupt because of this .It is a tax on consumer spending and not a tax on the business . No passenger transport over 10 seats has to account for vat .
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# 5
DUNTAXI
Old 19-02-2008, 8:46 PM
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Quote:
Originally Posted by JasonLVC View Post
As Pennywise states, you would be restricted to charging the same amount for a journey but being VAT registered, 17.% of that charge will now go to HMRC thus reducing your operating profits.

You'd have to weigh up if the VAT you recover on tyres, fuel, snacks and repairs is more or similar to the VAT you pay over to HMRC for the fares you have taken.

Not Registered -
Charge £10.00 for journey. Costs £5.00 running costs = £5 profit.

VAT Registered -
Charge £10.00 for journey of which now £1.48 is VAT.
Costs are now £3.50 due to recovering £1 VAT on running costs.
Journey income = £10.00 - £1.48 VAT = £8.52
Costs = £4.00
Profit = £8.52 - £3.50 - £5.02 (an actual increase in profits of 2p)

But will all depend upon just what expenditure/overheads you have as to whether this basic calculation works in your favour or not.


these figures calculated with the vat formula show a loss

vat reg
charge £10 for journey x7 / 47 - £1.49 = 8.51
running costs are £2.50 x7 / 47 -£0.37
£1.49-£0.37 = -£1.12
£10.00
-£ 2.50
-£ 1.12
---------
£6.38 less insurance ,tyres,maintainance ,road tax and wages
not much left then the vat is your profit and it is taken from you in tax you should not be expected to pay
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# 6
CannyJock
Old 19-02-2008, 11:25 PM
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Quote:
Originally Posted by DUNTAXI View Post
I have been involved in the business for 20 years and see people going bancrupt because of this .It is a tax on consumer spending and not a tax on the business . No passenger transport over 10 seats has to account for vat .
I know a few people who are full-time taxi drivers and they'd never get anywhere near the 64K VAT threshold. If you have a few plates then it'd be possible to do this, but then you're onto a different level of business entirely.

I've heard of multi-car owners who lease their vehicles to their drivers and because the individual drivers are well within the threshold they don't have the problem. If the owners are over the threshold they have to charge VAT to the drivers, but then it's a commercial decision and from the drivers point of view they just look at the monthly amount they have to pay.
"A child of five could understand this. Fetch me a child of five." - Groucho Marx
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# 7
DUNTAXI
Old 20-02-2008, 9:01 AM
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Default not getting the point

If vat is a tax on consumer spending then how is it that the HMRC expect the taxi firm to pay the vat out of their takings without being able to get it from the consumer first ?
I have seen people with 5 cars and employing people off the dole having to pay £10,000 a year out of their own pocket becuse they have not been able to charge it to the consumer or face prosecution by the Council for over charging.
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# 8
Pennywise
Old 20-02-2008, 10:56 AM
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It's not just taxis, it is ALL small businesses, including hairdressers, shops, florists, cafes, many of whom will have similar if not higher overheads than a taxi driver. Whether it is fair or logical, or not is irrelevant - it is the law. The only way to change it would be to lobby your MP which is what people have been doing for years - if enough people do it, then the politicians may listen. This is nothing new, VAT has been with us for around 30 years and the rules for the average, typical, self employed person or small business have not changed in that time.
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# 9
DUNTAXI
Old 20-02-2008, 1:38 PM
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Because of taxi legislation metered taxis cannot charge vat but have to pay it over.I have written to vat central office and they do not answer the question either .Just had a meeting with a vat inspector who initially tried to point out that this is how it is , when I pushed him on different reasons why it is wrong he said "I cannot go against central office policy but if you went to a vat tribunal maybe it would change " .If is has not been challenged before it is worth appealling.
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# 10
CannyJock
Old 20-02-2008, 3:32 PM
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Yup, get your point.

Sounds like it's worth a campaign to get taxis and other forms of public transport to be zero rated - this would solve the problem, let you register for VAT, provide zero rated services and still be able to claim back VAT back on your purchases.

After all, flights are zero rated, so why not all public transport? Environmental card to play and all that.

I know I've had clients claiming VAT back on taxis before in their accounts before I've pointed out that you can't actually do that - although the "company" will be VAT registered, the individual drivers won't be.

How does this apply to customers with a credit account with the taxi company? Presumably they could be charged an "administration fee" for their credit facility? I had this debate with a VAT inspector years ago where he suggested that I could charge VAT on invoices I sent out for re-charging to clients flights as expenses as it was "part of the service".
"A child of five could understand this. Fetch me a child of five." - Groucho Marx
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# 11
DUNTAXI
Old 20-02-2008, 7:56 PM
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2 taxis on the rank one registered one not meter is £2.00
first one gets £2.00
second one gets £1.70 after he takes out the vat and gives it away
most taxi tarrifs do not state anything but some say inclusive but I asked all the council's in Wales where I live and out of 22, 18 replied saying that vat is not included in the metered fare
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# 12
DUNTAXI
Old 20-02-2008, 11:14 PM
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The local Council's in England and Wales regulate the taxis under the office of Public Protection and set a rate for the customer to pay so they do not get ripped off.
This metered rate applies to all taxis in each council area and does not distinguish between vat registered or non vat registered taxis .
If the fare was to include vat on the tariff then the non registered taxis would be charging vat to customers when they are not allowed to by the cuatoms and excise and would be prosecuted for doing so.There is no way they would charge 17.5% less than the meter rate.

The vat guide states

1.2 What is liable to VAT?

The fares you charge to your passengers for taxi or private hire journeys are liable to VAT at the standard rate.

It also states
Where your charges are VAT inclusive...........................

so what about where they are not ????????????????/
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# 13
DUNTAXI
Old 23-02-2008, 5:12 PM
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What is VAT?

VAT is a tax on consumer expenditure. It is collected on business transactions, imports and acquisitions.
Most business transactions involve supplies of goods or services. VAT is payable if they are:
  • supplies made in the United Kingdom (UK) or the Isle of Man
  • by a taxable person
  • in the course of a business
  • are not specifically exempted or zero-rated.
6.1.2 When must I register and start to charge VAT?
If the value of your taxable supplies is over a specified limit, you must register for VAT, unless your taxable supplies are wholly or mainly zero-rated in which case you may apply for exemption from registration. The limits are shown in the supplement to Notice 700/1 Should I be registered for VAT?
If you are registered for VAT, you must charge and account for VAT on all your taxable supplies from the date that you are first registered.

What happens after I’ve registered?

You need to charge VAT on all your taxable supplies from your date of registration

Last edited by DUNTAXI; 23-02-2008 at 5:22 PM.
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# 14
Miketaxis
Old 04-10-2008, 11:17 AM
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Default VAT & taxis

Just in the process of working up to a full and frank discussion with my VAT Inspector. She has the opinion that the company is acting as a principal for all the self employed drivers and that I should pay VAT on the total takings not just the rental we get from them.

Any experience, success otherwise just send money?

Anyone else interested in campaigning to put taxis on a level playing field with buses and trains by zero rating VAT and subsidising fuel?

Mike
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# 15
longforgotten
Old 04-10-2008, 4:30 PM
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I understand that once a person is vat registered if they start another business in their name then that business will also need to be included on the vat return.

However if someone has two businesses both of which are under the threshold then there is no need to register for vat. Surely then if a person decided at the start to run two businesses, one say local taxi services and the other school runs, airport runs, then it maybe possible to get around the vat threshold. Obviously the correct paperwork would have to be completed, the one company recharging the other for use of vehicles etc, it will be necessary to show them as separate businesses. It could be done.

It is not possible to split a business once you hit the threshold as it will obviously be seen as avoiding paying VAT.
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# 16
longforgotten
Old 05-10-2008, 5:48 PM
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Iglite, I agree with you totally...

Quote:
As with many aspects of VAT, a wide range of issues need to be considered before reaching a decision as to whether an arrangement produces one or two businesses from a VAT point of view. It is often not a clear-cut situation, and the lost Tribunal cases show that Customs are not always correct in their interpretation of the law. But planning in advance is the key – rather than waiting for the dreaded knock at the door by the VAT man!
Unfortunately there are alot of questions that someone needs to ask before they even start trading , and that's for just one company!!!
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