Taxis and private hire businesses

Zero-rating of domestic passenger transport does not apply if the vehicle is designed to carry less than 10 passengers. Therefore, the fares charged to passengers using a taxi or private hire vehicle are likely to be liable to VAT at the standard rate, including any additional charges levied for waiting times, baggage, etc if the business providing the service is registered for VAT

Firms may also receive additional income from the following sources (this list is not exhaustive):

• •referral fees received from other firms
• •fuel charges
• •vehicle rental charges
• •administration charges

If the customer voluntarily gives a gratuity to the driver, the amount is not regarded as consideration from a VAT perspective, therefore no VAT needs to be accounted for on these amounts.

The VAT due will be calculated on the taxable items by multiplying the fares, including extras, by the VAT fraction (currently 1/6 for items liable to VAT at 20%).

The issue of whether recharges of insurance costs to drivers leasing a vehicle from the firm were liable to VAT, as a single composite supply of services or exempt from VAT, was recently the subject of a tribunal case in Wheels Private Hire Ltd (WPH). In this case, WPH operated a taxi hire business and it also rented a number of vehicles to certain drivers who did not have their own vehicle together with the provision of a radio service. The drivers that rented a vehicle from the business had the option of purchasing insurance from WPL which protected them against any third party liability whilst