New proposed legislation could see VAT imposed on UK taxi services

The UK Government is considering a legislative adjustment that could see taxi operators across the UK adding VAT to their fees.

As people grapple with economic pressures, this potential rise in taxi fares might discourage many from using them, possibly shaking the income base of these businesses.

Why is this being considered?

Until recently, VAT wasn’t universally added to taxi tariffs.

The obligation to charge VAT on services like ride-hailing only took shape in 2022 with Uber requiring to pay the tax.

Following a 2021 Supreme Court decision, Uber drivers were officially designated as workers. This brought about new tax implications and necessitated modifications in the app’s mechanics.

Post-decision, from March 2022, Uber integrated VAT into its fares. Competing platforms, Bolt and Freenow, mirrored this move.

Subsequently, to ensure a balanced marketplace, Uber has requested that VAT is charged on all taxi services.

How would this impact taxi operators?

For commuters, this could translate to a price increase, potentially up to 20 per cent, in line with the current peak VAT rate.

Taxi services, meanwhile, would confront shifts in their tax strategies, coupled with evolving demands in how they catalogue and declare tax. Taxis would need to adapt to using cloud-based systems for their tax records and abide by the ‘Making Tax Digital for VAT’ system.

Apart from systematising the VAT inclusion in their pricing model, there’s the possibility that VAT is backdated reminiscent of the scenario Uber faced.

The resultant financial implications might be sizable, with operators anxious about mounting arrears to HM Revenue & Customs (HMRC).

What’s the way forward for taxi services?

To adapt to this changing landscape:

With the support of an accountant, you will be reassured that you are complying with your tax obligations to avoid falling foul of the law.

Need guidance on your VAT obligations? Contact us today.

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