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ACCOUNT WORK AND VAT


Introduction Further to last month’s editorial, we have decided to focus further on a potential area of ambiguity within the private hire industry - account work.


For the purposes of this editorial, we shall be referring to two types of account work in light of how VAT applies to taxis and PHVs (VAT Notice 700/25) guidance as issued by HMRC, which at first glance seems rather straightforward, but has been known to be problematic in practice.


Why Does It Matter? Differentiating between account work and tendered account work is important when determining how to treat VAT on any invoice sent from the operator to the account customer, as demonstrated below.


In both instances below, it is likely that the self-employed driver who completed the account booking will be paid the fare(s) of the journey provided, weeks before the operator collects the fare(s) from the account customer.


Account work meaning: a customer who pays for passenger transportation services provided by the self-employed driver, on agreed credit terms with the operator acting as the driver’s agent.


Example: Account Work John Smith (“JS”) books passenger transportation services on a regular basis through ‘Triple P Cars’ (“TPC”), which dispatches these bookings to self-employed drivers, for the purposes of this example, Driver A.


TPC will then invoice JS once a month with all the fares due to Driver A for the completed bookings they have undertaken. It is likely that TPC would invoice JS on behalf of Driver A for the fare(s) owed to them without VAT. This would likely be the case as most self-employed drivers are not VAT registered, which in this example Driver A is not.


In the example above, it could be argued that TPC is invoicing JS on behalf of Driver A as their agent. Should this be the case, it would not be unreasonable for TPC to invoice without VAT.


It’s important to note this can be possible for informal account work i.e., JS and TPC above, however, with tendered account work the relationship is more formal - see below.


Tendered Account Work Meaning: an account customer with whom the operator has entered into/tendered for a contract. Usually, a local authority or government depart- ment with a formal contract in place.


Example: Tendered Account Work ‘Springfield Council’ (“SC”) enters into a contract for the


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provision of passenger transportation services with TPC. This contract expressly refers to TPC as the ‘principal’ of the contract and imposes a number of terms and conditions on TPC and any of their self-employed drivers that undertake bookings for SC.


In this instance, there is a formal and rigid engagement between SC and TPC. Should Driver A undertake book- ings from TPC for SC, it is much more difficult for TPC to justify they are invoicing SC on behalf of Driver A as their agent.


It is more likely, due to the contractual relationship mentioned above, that TPC is subcontracting bookings that are generated by virtue of the contract with SC to Driver A.


Should this be the case, it would not be unreasonable to expect TPC to invoice SC for the fares with VAT. We would suggest this is likely to be the case even if TPC does not make a service charge to SP for the provision of transportation services, due to the contractual agreement with SC.


Should a relationship such as SC and TPC be scrutinized by HMRC and TPC have failed to charge VAT on the fares TPC collected on behalf of the self-employed drivers, it is likely to result in a substantial VAT liability for TPC.


It is worth noting that if any operator is making a service charge to an account customer unbeknown to the driver, this will likely invalidate the suggestion that said Operator is acting as the driver’s agent.


Conclusion It is suggested that operators review their working practices and contractual relationship with self-employed drivers in light of both normal day to day activities and existing accounts that they undertake for formal and informal customers alike.


As per VAT Notice 700/25 we would encourage our opera- tors to discuss their current processes with us in order to properly establish best practice with us and how there might be a potential VAT liability on work previously undertaken.


It is worth remembering Samuel Goldwyn’s words that a ‘verbal contract isn’t worth the paper it’s written on.’


We would be pleased to hear from any operators with any queries in relation to improving their internal processes.


Call TaxiLaw on: 01743 298460 or email: admin@taxilaw.co.uk


JULY 2021


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