Readers' forum: Agent or principal?

A taxi firm is VAT registered and has two main sources of income. First it charges self-employed taxi drivers a commission for trips it gives them – this is based on 20% of the fare paid by the customer plus VAT. The commission applies to cash customers and those (mainly business customers) who have an account with the firm. Second the firm charges each driver a weekly fee of £50 plus VAT towards overheads.

My client has proposed a change in trading structure so that no weekly fee is charged to the drivers but my client instead retains the gross fee from account work – and pays the drivers a 40% commission.

My concern is whether the change in structure will create a VAT problem. I don’t think so because HMRC will end up with more output tax under the new arrangement. But is there a risk...