TALKING TAX
THE EVOLVING ROLE OF PAYMENT SYSTEMS IN PASSENGER TRANSPORT: A VAT PERSPECTIVE
Article by Gary Jacobs Eazitax:
www.eazitax.co.uk
What is new or different about payment systems?
This month I’ve been looking at how many of my clients use payment technology, and whether it can be supercharged. I’ll address some of the problems operators have with the transparency of the movement of OPM (other people’s money such as passenger fares) through their business, achieving better VAT management and ensuring the smooth flow of funds for both operators and drivers.
In the changing landscape of the taxi industry, payment systems are now an integral part in the way passengers pay for fares. However, as an accountant, I was wondering how this technology can be used to help my clients evolve their VAT obligations and produce more accurate accounts that are easily understandable by the HMRC.
Poking your big cat
We no longer live in the world of trying to make the Taxman work out our chaos. My first boss used to say: “Do not poke the tiger”. Well, the tiger is already poked, and we have to prepare for the digitisation of tax via HMRC’s Making Tax Digital programme.
The digitisation of society and the approach of cashless payments mean that we need to look at setting out the stall of how we run our business in a clear and concise manner. That will keep the HMRC tiger at bay.
What makes a payment system a dispersal systems?
Operators widely use payment systems to allow drivers to take money and to pay money onto drivers, but not necessarily as dispersal systems. These systems prioritise the guarantee of clients’ money, by leveraging Open Banking protocols; transactions are authorised without storing any banking or personal details. This eliminates the risk associated with storing sensitive information.
Speed is another factor, as an online checkout solution, these systems offer a fast and convenient way for
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customers to pay their fares, eliminating the need for card details or data entry. This allows operators to receive funds quickly and efficiently. A dispersal system enables the secure storage of funds in the cloud, allowing operators to demonstrate proper money movement and produce accounts that reflect accurate financial transactions.
VAT, the accountants view
From a VAT perspective, payment systems also offer several advantages that contribute to enhanced transparency and streamlined accounting. By allowing fares income to be processed outside of the VAT environment, operators can present accounts that accurately depict the movement of money.
This
transparency is beneficial for both operators and HMRC, as it promotes clear financial reporting and simplifies the VAT assessment process. Furthermore, it allows operators transparency to validate their VAT position.
The benefits extend beyond operators - they also provide drivers with a reliable method for holding funds in the cloud. Drivers can effectively manage their finances, accessing the necessary funds when needed, whilst maintaining traceability. This ensures that drivers can operate within the UK tax environment without undue complications.
Conclusion
Payment systems have not just revolutionised the way transactions are conducted but can be leveraged using this technology. This helps our clients evolve their VAT obligations and produce accounts which more readily reflect their trading.
There’s no problem in letting HMRC see where the money is; what is drivers’ and operators’ money and which one attracts VAT. By supercharging payment systems, operators can enhance financial reporting, simplify VAT, and optimise their tax position. Drivers will benefit from the flow of cloud-based money, all of it compliant with the tax authorities. So, a better journey for operators. Happier Drivers. Happier Accountants. Sort of happy Taxman.
You will be hearing more about this as I delve deeper and I will of course share the results, both good and bad. All down to embracing tech folks!!
JULY 2023 PHTM
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