Vat questions relating to taxi firms.

[harry munker]

Ok have a few questions as thinking of starting up a small taxi firm.

1.When is Vat taken from the money you take from customers?..

Am I right in thinking that Vat is taken straight out of all the takings and once the 17.5% has been deducted what is left then goes on the P&L sheet as your turnover...So turnover = takings minus VAT.

As you may already know taxi companies can be run in two different ways.That is the drivers can be employed by the company and they collect the takings from the passenger and give it all to the owner.Or the other way is they become self employed and they keep the fares but pay the owner a rent for the cars and a rent for the radio etc.

So my other question is this and it revolves around the VAT threshold.I think once you hit something like £68000 you must register for Vat.So lets say the company is run along the lines of employees collecting all the money.Well very quickly the VAT threshold is going to be hit and the company then has to start paying VAT.So isnt it better that everyone goes self employed so the turnover is split.The business will only be collecting car and radio rental and will stay under £68000 takings.Also the drivers themselves with their takings will never get close to £68000.So actually no one in the business and the business itself will now not get close to the VAT threshold.Or am I thinking about Vat in the wrong way?

Thank you for any answers

 

[Jaydee]

The standard way of operating would be with self-employed drivers. Their takings would never trigger VAT registration.

Your income would be radio rent, car rent and account-work margin.

You could remain unregistered if the sum of these were below the threshold, but you may need to revisit your forecasts as I have never yet found a private hire firm that is profitable (given a likely requirement for 24-hour staff, office rent, PCO licence, radio rent or purchase, vehicle rent or purchase etc etc) if it is under the registration threshold.

If the office registers for VAT then you declare output VAT at 7/47ths of the radio rent and the car rent. You add VAT to your account sales invoices, but should only do so on the profit element as you are acting as agent for the amount paid to the driver and as principal for the "admin fee". The downside of this is that your account customers know your profit margin.

If you net off radio rental income with account-work due to the driver and only receive the net, your output VAT remains at 7/47ths of the gross income, not the net receipt.

 

[spidersong]

You add VAT to your account sales invoices, but should only do so on the profit element as you are acting as agent for the amount paid to the driver and as principal for the "admin fee". The downside of this is that your account customers know your profit margin.

You need to be careful if you want to be succesful in operating as agency for account customers, many times taxi firms act as principal. The firm normally decides which drivers get the account and it's them that get the complaints if a driver doesn't turn up, they're normally the ones to sort out an alternative if the first driver is ill or something, they do all the admin and invoicing, and normally invoice for several drivers on a single invoice. The drivers normally have little to do with setting up the contract.

And if the drivers are the principals then there's little to stop them entering directly into accounts contracts themselves and cutting out the admin fee for the driver and the customer.

So if you do try to run as agent for accounts contracts then set it up very carefully, because HMRC will look at it very carefully.

 

[MyAccountantOnline]

Do bear in mind that you need to be extremly careful with regard to employment status.

If you use self employed drivers you must ensure they are genuinely self employed.

It is an area HM Revenue & Customs routinely look into and the cost of getting it wrong is substantial.

If you are going to take this option do get some advice from an accountant/tax advisor who has experience in this area.

 

[Jaydee]

You need to be careful if you want to be succesful in operating as agency for account customers, many times taxi firms act as principal.

I would say be very careful if you aim to act as principal rather than the other way round!

The work of the office will not materially differ (aside from raising an invoice and collecting the remittance) for cash or account work and it would be financial suicide to act as principal for cash work.

For this reason, I would always advocate ensuring that the internal documentation supports the agency relationship.

For the OP, if you wish to explore this point further, paras 3.3 to 3.7 of Notice 700/25 may help.

Notice

 

[harry munker]

Thank you for the answers received so far.You have raised some issues that I hadnt thought about so has been useful.
Maybe my idea of running the business is wrong but i was looking to have things as simple as possible but was wondering if my numbers add up.

Here is what i was hoping for.

I am expecting there is business in my area of something like £270,000 and that is takings.Looking to have 8 drivers.I would want the drivers to pay me £140 per week for radio rent and car.So my income would be 140x8 x 52 weeks=£58240.I calculate my big outlay would be insurance for the year which could be approx £9000.I would supply the cars.The drivers would pay for the fuel themselves.The contract work I would bid for on behalf of the company.

The drivers would keep all their takings and money from contract work too.So if driver A does a school run on monday the business would get £25 for that school run.The business would then make a payment of £25 to the driver.

With it set out like this the drivers would be self employed.Do you think the business model looks good would the drivers and me be happy at the end of the year with net profit looking ok?

 

[Spongebob]

Do you think the business model looks good would the drivers and me be happy at the end of the year with net profit looking ok?

I can't quite see how you can expect to pay all your office costs, staff the phones, fund 8 cars and radios, pay the insurance premiums, do the necessary marketing work, and pay yourself a decent salary out of a gross annual turnover of £58240.