VAT and transport expenses: all you need to know

The provision of passenger transport services

The value-added tax (VAT) regulations on the provision of passenger transport services change regularly and it can be difficult for companies to keep up with developments. The latest UK notice on the supply of passenger transport services dates from January 2021. This notice, issued by the UK government, defines passenger transport services as being supplied when “a vehicle, ship or aircraft is provided together with a driver or crew, for the carriage of passengers”.

Passenger transport services include, for example, buses, coaches, trains, canal barges, taxis, ferries and so on, as long as they are provided with a driver. The VAT rate that can be applied to passenger transport services varies. They can either be zero-rated, reduced-rated or standard-rated.

The provision of a service to transport passengers within the UK can be zero-rated with regards to any vehicle, ship or aircraft designed to carry ten or more people, as well as any scheduled flight, and transport provided by the Post Office.

There are exceptions to this rule. These largely relate to the provision of transport to and from a place of entertainment if the same company is providing the transport and the entertainment.

Reduced-rate VAT applies to the provision of transport in the form of cable cars, gondolas and so on, as long as these vehicles are not designed to carry more than nine people.

The provision of taxi services, limousine services and hire cards is covered by the standard VAT rate (20%) unless the vehicle has ten or more seats.

VAT on different forms of transport

The amount of VAT that can be reclaimed on transport depends on the type of transport. Assuming that the purpose of the journey is “wholly and exclusively” connected to the business (visiting a customer, picking up supplies, attending a conference, for example), you may decide to use a number of transport options to complete the journey.

Although many companies now strive to reduce their air miles and use greener forms of transport, flights remain the only feasible option for many business trips, especially when time is of the essence. Domestic flights in the UK are zero-rated for VAT, so there is no VAT that can be claimed back.

The same holds for train tickets, which are also zero-rated for VAT. It is worth remembering that “zero-rated” is not the same as VAT-exempt. 

One of the only forms of transport that VAT can be reclaimed on is taxis, but this is only the case if the taxi firm is VAT-registered. As with anything contained in your VAT return, VAT receipts must be provided, so remember to ask for one from the driver!

Finally, you or your employees may decide that it is most convenient to use a personal car to get to the destination, in which case mileage, fuel, and other costs such as parking can be declared as expenses and the VAT is deductible. If you decide to pay a mileage allowance to your staff, you should remember that only the fuel part of the allowance is VAT-deductible, not the part relating to wear and tear on the vehicle.

VAT on freight services

As with the provision of passenger transport services, the VAT regulations applying to the supply of freight transport are complex but worth understanding for companies involved in transporting goods.

The definition of “freight”, according to the UK government, includes the transport of goods or cargo, mail, documents and unaccompanied vehicles. “Freight transport services” are supplied when a vehicle is provided with a driver or crew for the purposes of carrying goods.

In terms of the VAT on freight services, this depends upon where the “place of supply” is. As with passenger transport, when the entire journey takes place within the UK, UK VAT regulations apply. The transport is, therefore, standard rated. Different rules apply when providing transport services between the UK and another country.

Transport outside the UK

If the transport takes place entirely within the UK, obviously the supplies are all considered as being inside the scope of application of the UK’s VAT regulations. However, specific VAT rules are applied to passenger transport that involves journeys that are partly within the UK and partly outside the UK. For example, a boat departing from an English port may transport passengers to Dublin and then return to the UK.

It is essential to determine where the “place of supply” is. In this case, the part of the journey that is within UK territorial waters is covered by UK VAT rules, while the remainder is not. One exception is cruise ships that enter the UK from abroad. These vehicles are considered to be outside the scope of UK VAT, as long as passengers neither embark for the first time nor definitively disembark while in the UK.

Conclusion

The VAT rules around transport, whether involving your staff, passengers or freight, are complex and it is worth finding out more about which rules apply to your situation. A Mooncard corporate card can help streamline your record-keeping and make it easier to file VAT returns and make claims. For more information, get in touch to book a no-strings-attached demonstration from Mooncard today!