Taxi VAT

We have a client who runs a taxi operation. They own the cars and pay for all running costs. 

They pay the drivers a share of the takings.

Say, the driver earns £1000 a week. They would say give the driver £400 and keep £600.

Now, as the drivers are not VAT registered they are taking that £600 and applying 20% VAT to it and paying the £120 over to the treasury.

Is this right or should the money be treated as received gross and then they should divide it by 6.

If it's 20% then it seems to be they are being unfairly penalised as they've never received the VAT.