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Is there VAT on trains?

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Is there VAT on train tickets? Don’t get derailed by hidden costs

Is there VAT on train tickets? Like all of life’s great questions, the answer is not as simple as it first appears. Value Added Tax rates on expenses such as train tickets and train travel is usually zero percent. 

But there’s a big difference between zero-rated and being exempt from VAT taxation. 

Keep reading to learn more about Value Added Tax on train travel, other forms of public transportation and how to account for VAT.

Are train tickets subject to VAT in the UK?

Train tickets in the UK fall under the zero-rated category. This means as a business you need to keep track of the 0% VAT you’re paying on train travel in your VAT returns. 

This is different from being exempt from VAT. Unlike exempt items, like postage stamps, which the government considers as entirely outside the scope of VAT. The advantage of zero rating is that businesses can claim back VAT on related purchases, benefiting their cash flow, without having to charge their customers extra. 

Reclaiming VAT on zero-rated supplies is what makes zero percent VAT such a favourable tax rate. You can claim all the benefits without the drawback of charging your customers extra.

Is there VAT on public transportation in the UK?

Domestic UK transport is usually 0% VAT so long as the vehicle, ship or aircraft has at least ten seats, including those for the driver and crew.

This might look like: 

  • Pleasure cruises
  • Cliff lifts
  • Excursions by coach or train (including steam railways)
  • Horse-drawn buses
  • Mystery coach or boat trips
  • Sightseeing tours
  • The transport element of park-and-ride schemes designed to reduce traffic congestion in city centres 

But there are some exceptions to this rule, which often focus on whether the transport you’re supplying is to an event, experience or entertainment that you also own. In which case you’ll need to charge the standard rate of VAT on the transport.

According to HMRC’s website, this would look like:

  • Transport services when they’re included in the admission price to a place of entertainment, historic or cultural interest like a theme park or museum.
  • The use of any vehicle to, from or within a place of entertainment, historic or cultural interest, if the transport and admission are supplied by the same or by connected persons
  • Transport in any motor vehicle between a car park or its vicinity and an airport passenger terminal or its vicinity, when the car parking facilities are supplied by the same or connected persons
  • Flights for entertainment or the experience of flying and not primarily to transport people from one place to another

Is there VAT on other forms of transportation in the UK?

Usually, passenger transport in a vehicle that can only accommodate less than ten passengers is subject to VAT at the standard rate. The standard rate of VAT in the UK is 20%.

More than ten seats: Probably zero-rated. Less than ten seats: Probably the standard rate. But let's take a closer look.

Is there VAT on Uber and taxis?

Yes, there is usually VAT on taxi fares at the standard rate unless the taxi driver is self-employed and not registered for VAT. So it’s always worth asking for a VAT receipt.

Bear in mind that most Uber drivers are self-employed and earn under the VAT threshold. So you’re less likely to get any sort of VAT return through Uber, whereas lots of taxi drivers work for larger firms that will have to charge VAT.

You’ll also be charged VAT on other parts of a taxi journey like:

  • Baggage
  • Waiting time
  • Administration charges

If you give a tip to a taxi or Uber driver this is not regarded as payment for a supply, so is outside the scope of VAT.

Is there VAT on ferry travel?

So long as the ferry in question can carry more than ten people at a time, they are usually zero-rated for VAT purposes.

There is an exception to this rule for boat rides to, from, or within a place of entertainment or cultural interest. In these cases, the tickets are subject to standard-rate VAT rates. Ferries, canal boat trips, and similar boat excursions that do not have additional facilities and take place on the open sea or other waterways accessible to the public are zero-rated for VAT.

Is there VAT on buses?

VAT rates for buses are just like train tickets and other forms of public transport, zero-rated. Any travel expenses relating to a bus journey must be entered as zero-rated in your accounting software, and not exempt.

But remember in scenarios where the cost of bus fare is included with the right of admission to a place of entertainment or provided by the same provider then it is standard rate VAT.

Is there VAT on coaches?

Coach tickets do not have VAT added to their price because coach travel is considered an essential service that is zero-rated for VAT. However, certain things you buy during a coach journey, like onboard food and entertainment, may have VAT included in their cost.

Is there VAT on flights?

Public flights in the UK are VAT-free, so you don't have to pay or charge VAT on a flight ticket, but they’re not complete tax exemptions. You are subject to Air Passenger Duty (APD) that airlines include in the ticket pricing. 

The amount of APD taxation depends on how far you're flying and the class you choose. Domestic flights are taxed for both the outbound and return trips, while international flights are only taxed on the outbound leg from the UK. Unlike VAT, you can't reclaim APD, except when you book a flight but end up not using it. In that case, you can reclaim the APD from the airline by filling out a form. 

Private flights with less than ten passengers, or pleasure flights that are designed for an experience rather than transportation, are an exception and still subject to the standard 20% VAT rate.

How do VAT refunds work for travel expenses?

Ultimately businesses claim all VAT refunds for travel expenses by completing the appropriate sections on their VAT return. If the amount of VAT you’re claiming exceeds the amount of VAT you owe, then the government will pay you back the difference in the form of a VAT refund. 

In practice, this looks like:

  1. Making sure you’re VAT registered.
  2. Ensuring you have valid VAT invoices for all your postage expenses.
  3. Keeping accurate records of your input VAT. 
  4. Filing your VAT returns on time and including postage costs.

You’ll then receive a VAT refund that includes VAT charged as part of travel expenses if you’ve shelled out more on VAT for things you’ve had to buy as a business, versus things you’ve sold as a business.

Remember that to be eligible for a refund you must meet all the necessary VAT compliance rules and regulations. HMRC may review your VAT refund claim, and request additional documentation or information to support your claim. So it's essential to maintain accurate records and be prepared to provide any relevant documentation.

How to account for VAT

If you register for VAT, there are a few different VAT accounting schemes you can use to go about telling the government how much you owe them and they owe you:

  • Standard VAT accounting means you track purchases, sales, and VAT amounts, paying or claiming back based on invoice dates every quarter.
  • The Flat Rate Scheme simplifies things, using a percentage of your annual turnover to calculate VAT. 
  • Cash Accounting is similar to standard VAT accounting but everything is based on the payment date, not the invoice date. 
  • Annual Accounting is for those who prefer filing VAT returns once a year and paying based on invoices. 

What’s best for you and your business will depend on:

  • Your cash flow
  • How much VAT you pay out and get paid
  • How large the finance team is in your organisation.

Pleo and train tickets? A match made in heaven 

Managing expenses related to travel can be a hassle, especially when it comes to understanding and managing VAT. Pleo can help you:

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