Taxi fares could rise by 20% as High Court rules that companies rather than drivers are liable for contracts – meaning hire firms could be responsible for charging VAT
Taxi fares across the UK could rise by 20 per cent after a High Court ruled that companies, rather than drivers, are liable for contracts.
Under current rules, private hire operators do not pay VAT because the individual taxi drivers are classified as independent contractors. Therefore the firms do not meet the required earnings threshold of £85,000 annually.
But the new ruling – which has been dubbed ‘taxi tax’ by industry insiders – could see firms liable for charing VAT. Uber has already raised its prices in response to the court ruling its operations in London could be viable for VAT.
Meanwhile, taxi firms are calling on ministers to change the law to clarify that cab operators would be exempt from VAT.
Taxi fares across the UK could rise by 20 per cent after a High Court ruled that companies, rather than drivers, are liable for contracts. The ruling, which came following a legal battle with Uber, means that taxi companies could be responsible for charging VAT (stock photo)
The High Court case extended the ruling across the UK and to include both online operators and minicab firms where drivers take payment directly from customers, the newspaper reported.
But industry leaders allege the ruling has ‘sowed confusion’ and could result in the collapse of smaller firms.
Dave Lawrie, director of the National Private Hire and Taxi Association, argued that there has to be a ‘clear distinction’ between companies like Uber, that take money from customers up front, and small firms that take bookings on behalf of drivers who are then paid directly by the passenger.
Mr Lawrie added that the ruling could possibly lead to the ‘end of the self-employed business model at the expense of big firms like Uber’.
He described the situation as a ‘mess’ and said that officials are in discussions with the Department for Transport in an effort to ‘clear it up’. However, Mr Lawrie warned: ‘If this doesn’t happen then there is a risk that everyone will have to charge VAT.’
Joseph Jones, who runs Door2Door taxis in Southampton, echoed Mr Lawrie’s claims, stating that imposing VAT on fares directly impacts customers and drivers.
He warned a 20 per cent increase in fares will leave some passengers unable to afford their services, which will then reduce drivers’ earnings. Mr Jones suggested the change could ‘easily see tens of thousands of people leaving the industry’.
Meanwhile, taxi industry insiders say there is a ‘huge’ behind the scenes effort to get MPs to ‘take the situation seriously’.
A spokesperson for HM Revenue & Customs told The Times: ‘It’s always been the case that taxi and private hire vehicle fares are liable to VAT at the standard rate.’