Taxis and VAT : how it works ?
Taking a taxi can sometimes be the only feasible way of getting from A to B. When an employee arrives by train or plane in a new city and has to get to a meeting with a client on the other side of a town which is poorly served by public transport, a taxi may be the only solution. The availability of mobile ride-sharing apps and taxi booking apps makes ordering a taxi so much easier than before.
That said, the costs of regular taxi fares can add up, as can the VAT. Knowing how and when to reclaim the VAT on taxi journeys can help you make the most out of your deductible expenses. Find out more with Mooncard.
VAT and travel expenses
Business travel and the costs associated with it really slowed down during the COVID-19 pandemic. Zoom calls and video conferencing took over from face-to-face meetings and staff were obliged to work from home. However, now that the business world is getting rapidly back on its feet, business travel is once again a significant percentage of all business expenses.
Whether you and your staff travel by train, plane, bus or bicycle to meet customers or carry out other business activities, there are tax implications. It is worth knowing more about these issues in order to make the most of your value-added tax (VAT) returns.
Although many companies are now considering greener alternatives such as cycle-to-work schemes, car-sharing and off-setting the carbon footprint of flying, sometimes the only way to efficiently get to a business event is to hire a taxi. When it is too far to walk, pouring with rain or when you are laden with heavy luggage, hailing a taxi is often the best option.
Many small businesses are unaware of if or how the VAT on a taxi fare can be reclaimed. In this article, we will look into the issues surrounding VAT and taxis more thoroughly.
VAT on taxis
In the UK, passenger transport is generally zero-rated for VAT. That means that VAT cannot be reclaimed on things such as train tickets or plane fares. However, the issue is not quite as clear-cut as it might first appear. The zero-rate only applies to passenger transport that is designed or adapted to carry ten or more people. It does not apply to vehicles, such as black cabs, taxis and other private hire cars, designed to carry fewer passengers.
In other words, generally, the standard rate VAT (20%) applies to taxi fares. If the business is registered for VAT, they must add 20% VAT to their fares and you in turn can claim that back as a deductible business expense in your VAT return to HMRC.
There has been some controversy over whether “mobility as a service” providers are covered by UK VAT. Under the provision of such services, the drivers may be considered the sole proprietor of their vehicle, rather than employees of an overarching agency. A recent court ruling ordered that VAT should apply to rides booked directly through an app, rather than directly with the driver. If in doubt as to whether your taxi ride is VAT-deductible, ask your driver. As well as being obliged to hold a licence to carry passengers, if your driver is VAT-registered they are legally required to issue you with a VAT receipt which includes their VAT registration number, the date of the journey and the amount of the fare plus VAT.
As with all VAT claims, you must make sure that you have documentary proof of the expense, so a VAT receipt from the taxi company, including their VAT registration number, will be needed. You can then use this to claim back the input VAT in your quarterly return to HMRC.
VAT on addition costs
Sometimes taking a taxi can incur additional costs on top of the actual fare. Some drivers may charge extra for loading up heavy bags, transporting animals (unlikely as this may be in a business setting!), or waiting at the airport while formalities are being completed. All these additional charges are also standard-rated for VAT in the UK. This means that you can also reclaim the VAT on these additional costs.
However, when it comes to providing tips and gratuities, this rule does not apply. Tips and gratuities are considered to be voluntary contributions, rather than a payment for a supply and as such fall outside the scope of VAT regulations.
To conclude, taking a taxi might sometimes be the easiest option and knowing whether you can reclaim the VAT as a deductible business expense can be just as straightforward! As long as your taxi ride is “reasonable” and “wholly and exclusively” for business purposes and as long as your taxi driver is VAT registered and issues you with a valid VAT receipt, you can safely reclaim the VAT in your next quarterly return.
Keeping track of taxi receipts and expenses can be a headache. A Mooncard corporate card can simplify things by streamlining your record keeping and avoiding the need to collect scraps of paper.
Find out more about how Mooncard can make your business travel run more smoothly by booking a free demonstration today!