Most drivers we speak to assume VAT is a problem for shops and builders. Then a good year on the app, a second platform, or a stretch of airport work pushes them over £90,000 and nobody has mentioned it. The threshold is measured on a rolling 12 months, HMRC already receive your earnings from the platforms, and the penalty for registering late is entirely avoidable. Here's how to see it coming.
What is the VAT threshold and how is it measured?
You must register for VAT if your taxable turnover goes over £90,000 in any rolling 12 months, or if you expect it to go over £90,000 in the next 30 days alone.
Rolling is the word that catches drivers out. It isn't the tax year and it isn't your accounting year. At the end of every month you look back at the previous twelve, so a strong summer can put you over even if the calendar year ends up quieter.
What counts as my turnover?
Broadly, everything you take from the work before costs: fares, delivery fees, tips paid through the app, incentives and bonuses. Your expenses don't reduce it, so a driver with £95,000 of fares and £40,000 of running costs is over the line, not under it.
Two things are worth checking rather than assuming.
Whether the fare is yours or the platform's. How a platform contracts with you and the passenger decides whose supply the journey is, and the models genuinely differ between apps and have changed over the years. It's the single biggest factor in whether you're near the threshold at all, so it's worth reading your driver agreement or letting us read it.
Everything you do, added together. The test covers your whole business, not each app. Ride-hailing, deliveries and any other self-employed work count towards the same £90,000.
When exactly do I have to register?
You have 30 days from the end of the month you went over to register, and your registration takes effect from the first day of the second month after you crossed the threshold. Go over during October, and you register by the end of November, with VAT starting on 1 December.
The forward-look test works differently: if you know today that the next 30 days alone will take you over, you register immediately and VAT applies from the date you realised, not later.
Once you're registered you'll also be inside Making Tax Digital for VAT, which means digital records and returns filed through compatible software.
Does HMRC already know what I earn?
Yes. Since 1 January 2024, digital platforms have had to collect details of what their sellers earn and report them to HMRC, with each calendar year's figures sent by the following 31 January. That covers ride-hailing and delivery work by name.
There's a small-seller exemption, but it only applies to people selling goods, so it doesn't help drivers. In practice, assume HMRC can see your platform income and file accordingly.
Is the Flat Rate Scheme worth it for drivers?
Often, yes, and it's simpler than standard VAT accounting. You can join if your VAT turnover is £150,000 or less excluding VAT. You charge VAT as normal but pay HMRC a fixed percentage of your gross takings and don't reclaim VAT on most purchases.
For transport and taxis the rate is 10%, and there's a 1% discount in your first year of VAT registration.
Watch the limited cost business rule. If your spending on goods is less than 2% of turnover, or under £1,000 a year, you pay 16.5% instead, which is a very different proposition. The saving grace for drivers is that fuel counts as goods for this test where you're in the transport sector using your own or a leased vehicle, which is exactly the position most private hire drivers are in.
Whether the scheme beats standard accounting depends on your fuel spend and whether you're buying a vehicle. It's a ten-minute calculation and worth doing properly rather than following what someone said in a drivers' group.
What if I go over once and then drop back?
You can ask HMRC for an exception if you go over because of a one-off and can show your turnover for the next 12 months will stay below the deregistration threshold of £88,000. You have to ask, with evidence, at the time.
If you're already registered and your turnover falls below £88,000, you can apply to cancel. And if you stop being eligible altogether, you must cancel within 30 days or risk a penalty.