A New Mercedes Benz

Last year when it became apparent our VAT scheme would need to change, it was also evident the existing VAT scheme would generate a surplus revenue in a relatively short space of time. Coupled with this were two ageing vehicles on our company fleet which would need changing. With this in mind it seemed like a good time to take up the offer of an extended test drive.

Not too far from where I live there is a Mercedes Benz showroom for commercial vehicles. One weekend I popped in to have a look and was offered the loan of a ‘Vito’ people carrier for almost a week. It seemed rude not to accept. If I am honest, it was also good fun to drive something a little larger than I would normally.

So what did I think? Well, it was extremely practical. It wasn’t too unwieldy and a vehicle that size has the potential to generate extra revenue. On the flip side, the test vehicle was somewhat basic with its plastic bumpers and steel wheels. It was some way off an executive standard too (even if my wife did spontaneously purchase a washing machine which we took home with us).

After a few days of driving the vehicle in different environments and seeing how it measured up as a people mover, it made sense to have something this size. It also made sense to have something with such reasonable running costs. So what did I say to the salesman when I took it back? “I like it and it makes sense so I have placed an order for a Mercedes V Class” which is something you can only buy at the car dealership.

The VAT Advantage

My last blog spoke about VAT changes. In relation, its biggest affect is on a vehicle purchase. Historically I bought vehicles about three years old and they were preferably ex-company cars which had been on lease. The reasons? They were well maintained, had been under warranty and had done most of the depreciating in the price department.

In the last few years, I have realised two drivers sharing one car generates more profit. The consequence is the car wears faster. That wear can be expensive too, especially if you clock more than 60,000 miles a year. For example a clutch could cost £1,500 to fix and another £2,000 in lost revenue while off the road. Buying a second-hand car also means the inability to specify certain features or colours.

In contrast, Mercedes Benz offer a three-year, unlimited mileage warranty on a brand new vehicle. Add the advantage of reclaiming VAT on the running costs and purchase price and it makes a new vehicle much more appealing. With the volume of our work building and already supporting ten full-time drivers, projecting figures over three years gives some interesting calculations.

If you consider our pricing structure adds 50% when carrying more than four passengers, the extra revenue would help contribute toward a vehicle. Additionally, Mercedes people carriers offer a potential 28,000 miles between service intervals and they have solid residuals. With this in mind, a new vehicle doesn’t look so expensive after all when calculated over three years.

The Flat Rate Conundrum

When DrivenByQ Ltd incorporated (in 2007), it seemed a good idea to register for VAT (Value Added Tax). Although our turnover did not exceed the registration threshold at the time (of £86k per annum), we registered anyway and used the simplified VAT system known as the Flat Rate Scheme. We charged VAT to account customers but could not reclaim VAT on purchases.

The upshot of not reclaiming VAT was retaining a good portion of the VAT collected on the invoices. Over time it was quite a nice revenue which the business would not otherwise have accessed. It generated around 8.5% extra revenue on the turnover. The scheme worked great until April 2017 when the rules were updated.

The UK Government made a change to tackle ‘aggressive abuse’ known as the limited cost trader scheme. This required a business to spend more than 2% of its turnover on goods to qualify for the same rate of VAT retention. For DrivenByQ the only way this was possible was to move our vehicles inside the business and claim the fuel as goods (something only a private hire company can do).

The issue here was that the vehicles were previously owned by ourselves as sub-contractors. Therefore moving the vehicles in to the business would also require us to be employees. After some detraction, we finally decided to move the cars and ourselves as owners inside the business. This required a payroll and a pension scheme to be setup along with salaries.

Just as it began to work smoothly, a competitor went in to liquidation and we acquired a new customer spending over £50k on account. This pushed the turnover above the flat rate threshold (£193k) and meant the scheme could no longer be utilised. On one hand it was frustrating but on the other, it generated enough revenue to place a deposit on a brand new Mercedes. We managed to claim the VAT back too.

Four Years Later and I’m Back!

After four years away, I am back at the keyboard returning to blogging. What happened? Well, truth be told, becoming a Dad was a tad more demanding than I thought it would be. Eighteen months of sleepless nights; the obligatory babysitting duties and various illnesses my little boy brought home from nursery all had an effect.

There were numerous colds, coughs and sneezes he passed on, then the viral infections and finally the gift of Chicken Pox (which I never had when younger). This resulted in a trip to A & E in the back of an ambulance when it travelled to my lungs and developed as Chicken Pox Pneumonia. For the uninitiated, this can have a somewhat slightly adverse effect on your breathing!

With my son now in school, I am blogging again with a renewed enthusiasm. So what has changed in the last four years? Personally, as well as becoming a Dad, I tackled a Master’s Degree in Business Administration (otherwise known as an MBA), I had spinal surgery for two herniated discs and business wise, DrivenByQ almost doubled in size.

In the private hire industry, the growth of Uber spawned new case law relating to the gig economy. From this came the Taylor report (with more rules around workers rights). Separately, the National Living Wage and pensions were introduced and new VAT rules appeared. These then triggered a sequence of events which eventually lead to our first ever (brand new) vehicle being purchased.

While it has been hectic, I suppose it has generated lots of blogging material to crack on with. So, watch this space. There is plenty more to come.

A Private Hire Vehicle

In my last blog (a little while ago) I wrote about a taxi or Hackney Carriage which could be hailed in the street and hired on a meter. The alternative is a private hire vehicle which cannot be hailed. This service is booked in advance through a licensed operator who keeps a list of all journeys (known as a run sheet). They have set prices or quote using their own system and they charge for dead mileage.

The vehicle is licenced under its local council. It is identified in line with council conditions too, which could be a plate to the front and rear (with windows stickers to the sides) or the operators name plastered all over the vehicle. In contrast, some councils stipulate a small plate on just the rear of the vehicle or even a single and discreet disk, mounted in the front screen.

The diversity comes from the way the law was formed and introduced. Known as the Local Government (Miscellaneous Provisions) Act 1976, every council across the UK has its own interpretation of the conditions which govern the industry (depending on their location and environment). These conditions can vary from city to city and between rural locations too.

Crucially, the law was not carefully constructed by central government over a period of time. Instead it was lifted (in a rush) directly from the Plymouth City Council Act 1975 which was specific to a borough of England - and not necessarily the best fit for everywhere else. Over time, with advances in communication technology and the evolution of the Internet the law has become outdated.

To add to the diversity and confusion, a private hire vehicle can have up to eight passenger seats and it can often be any make and model the driver or operator prefers (subject to some licencing conditions of course). This means some vehicles are bought for their rock bottom prices and some, are bought for their level of quality and ability to perform.