Category: Value Added Tax (VAT)

The UK’s Autumn Budget 2025 introduced a major tax change for the private‑hire sector. Since 2 January 2026, large ride‑hailing operators in London, such as Uber and Bolt, can no longer apply the Tour Operators’ Margin Scheme (TOMS) to their fares. This new taxi tax means they must charge 20% VAT on the full fare, not just on their margin. HM Treasury claims that this move will eliminate a tax loophole, establish fair competition for black taxi drivers, and generate approximately £700 million in revenue.

This article looks at why private hire VAT changes were introduced, how they work, and what they mean for passengers, drivers, and operators. It also explains how Apex Accountants can help your business comply with the new rules.

Why Was the Tour Operators’ Margin Scheme Being Used?

The Tour Operators’ Margin Scheme is a special VAT scheme designed for tour operators selling travel packages. It allows companies to pay VAT only on their profit margin rather than on the full cost of the trip, often reducing the effective VAT rate to around 4%. In recent years some large ride‑hailing firms applied the scheme to domestic private‑hire journeys. This meant they charged VAT only on their commission after paying drivers and not on the entire fare.

In London, courts have ruled that ride‑hailing operators act as principals in the supply of passenger transport, so they must collect VAT on the full fare. Outside London, operators could continue acting as agents, accounting for VAT only on their commission. 

The Upper Tribunal ruled in March 2025 that Bolt’s ride-hailing services could fall within TOMS. HMRC appealed, and on 12 June 2026 the Court of Appeal allowed HMRC’s appeal; Bolt’s application for permission to appeal to the Supreme Court was refused on 29 September 2026. Separately, the Finance Act 2026 now excludes taxi and private-hire passenger journeys from TOMS for supplies made on or after 2 January 2026, except where the journey is supplied alongside and is ancillary to certain other travel services. 

What is the change in VAT on Taxi Fares in the UK from January 2026?

The policy paper “Private Hire Vehicle Operators and the Change in Legislation for the Tour Operators’ Margin Scheme” sets out the details. The key points of Reeves’ private hire VAT are:

• Exclusion from TOMS – Section 53 of the VAT Act 1994 is amended to exclude suppliers of taxi and private-hire journeys from being “tour operators” for VAT purposes, except when the journey is supplied as part of a wider travel package.
• Effective date – The VAT on taxi fares UK rule applies to journeys from 2 January 2026.
• Scope: The change affects businesses that buy in and resell taxi or private hire journeys as principals or as agents acting in their names. Journeys where drivers provide the service directly, as disclosed agents are unaffected.
• Exceptions – TOMS remains available when a taxi or mini‑cab ride is supplied in conjunction with accommodation or another principal travel service, such as part of a holiday package.
• Exchequer impact – HM Treasury expects the measure to raise around £190 million in 2025‑26 and £725 million in 2026‑27, tapering slightly in later years.

The Impact of the London Taxi VAT Increase

In London, private‑hire operators are legally required to act as principals when supplying journeys to passengers. Acting as principal means the company sells the entire transport service and must account for VAT on the full fare, not just its commission. Now that the new VAT rules for London taxis have taken effect, ride-hailing firms in London must account for VAT on the full fare at the standard 20% VAT rate, increasing the VAT due on these journeys.

Outside London, regulations may still allow operators to act as agents. Where the driver is the supplier, the operator generally accounts for VAT on its commission. The driver only needs to charge and account for VAT on their own taxable supplies if they are VAT-registered or required to register. The VAT registration threshold remains £90,000 for 2026/27. 

Uber has responded by rewriting driver contracts outside London so that the company acts as an agent, meaning VAT continues to apply only to its commission. As per recent reports, the new contracts make drivers contract directly with passengers, leaving Uber VAT solely to its commission. Because drivers seldom reach the VAT threshold, most fares outside London will avoid the 20% tax.

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Impact on Fares and the Cost of Living

Expected Fare Increases

Official documents do not specify exactly how much fares will rise, but industry estimates provide a guide:

• It is suggested that adding 20% VAT could add £2–£3 to a £12 journey.
• Insurance broker INSHUR estimates that a £20 fare may increase to £24.
• Uber’s UK general manager, Andrew Brem, warns that the government’s action will “mean higher prices for passengers in London and less work for drivers.”
  

These estimates imply that passengers could see fare increases of roughly 15–20%. A survey indicates that 70% of passengers would reduce or stop using private‑hire services if fares increased by 20%. This suggests the VAT on taxi fares in the UK may have a noticeable effect on demand, particularly for short trips.

Reeves Private Hire VAT Impact on Drivers and Operators

• Drivers’ earnings – Many drivers are self-employed and earn less than the VAT threshold. If the operator acts as an agent, drivers only charge VAT on their own taxable supplies if they are VAT-registered or required to register, so the impact on fares may be more limited. However, in London, the operator must act as principal, meaning the fares will include VAT. Operators may choose to share the cost with drivers, potentially reducing earnings.
  
• Reduced demand – Higher fares could lead to fewer trips, particularly outside peak hours. Lower utilisation could squeeze drivers’ incomes.
  
• Business models – Large operators like Uber and Bolt are revising their business models. Outside London they are switching to an agency model to avoid charging VAT on full fares. In London, operators may still look for efficiency gains or promotional pricing to remain competitive.
  
• Small operators and black cabs – Smaller taxi and private‑hire firms that already pay full VAT or operate below the threshold are largely unaffected. The Licensed Taxi Drivers Association welcomed the private hire VAT changes as a “landmark step for fairness”, arguing they end the competitive advantage enjoyed by ride-hailing platforms.

Wider Impacts of Reeves’ Private Hire VAT

The government said the measure would protect around £700 million of tax revenue annually, with official costings citing approximately £190 million in 2025-26 and £725 million in 2026-27; actual receipts may vary with operators’ contractual models. Officials say the revenue will help fund priorities such as cutting the cost of living, reducing waiting lists and reducing national debt. While black cab drivers see the measure as levelling the playing field, hospitality and transport groups warn that higher fares could deter people from travelling for leisure or work. Some commentators argue that a lower VAT rate on transport would have encouraged mobility and economic activity. The debate shows the challenge of balancing tax fairness with affordability.

How We Can Help Navigate the New Taxi Tax in UK

Apex Accountants understands how new tax rules can disrupt your business. Our team of VAT specialists can help private hire operators, taxi firms, and self-employed drivers navigate the 2026 VAT changes. We offer:

• VAT registration and compliance – Assess whether you must register, prepare VAT returns and ensure you collect the correct tax. 
• Business model reviews – Clarify whether you should operate as an agent or principal, calculate the impact on your margins and draft clear contracts.
• Accounting software setup – Integrate digital tools to automate VAT calculations and recordkeeping, with outsourced bookkeeping for VAT records available where ongoing support is needed.
• Company tax support – Private-hire operators trading through limited companies can also use our corporation tax services for company tax calculations, returns and wider compliance. 
• Training and support – Provide guidance on invoicing, VAT thresholds and claiming input tax to maximise deductions.
• Industry updates – Keep you informed about further changes to licensing, HMRC guidance and relevant court decisions.

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Conclusion

The government’s decision to close the TOMS loophole marks a major shift in VAT on online cab companies. Since 2 January 2026, large operators in London must charge 20% VAT on the full fare, bringing their tax treatment closer to that of black cabs. Outside London, operators may act as disclosed agents, so VAT generally applies only to the operator’s commission; the fare itself is not subject to operator VAT unless the driver is VAT-registered or required to register. Industry estimates have suggested that some London fares could rise by around 15–20%, although the actual impact will depend on how individual operators respond to the VAT change. 

With proper planning and professional advice, businesses can adapt to the new landscape. For tailored guidance on VAT, tax planning and compliance, Apex Accountants is here to help you navigate the roads ahead.

Frequently Asked Questions About VAT for Online Cab Companies

What is the Tour Operators’ Margin Scheme (TOMS)?

The TOMS is a simplified VAT scheme for travel companies that buy and resell travel services. It allows firms to pay VAT on their margin (profit) rather than the full selling price. It was designed for travel packages such as holidays. Under TOMS, operators normally pay an effective VAT rate of around 4%, compared with the standard 20%.

Why were ride‑hailing companies using TOMS?

Following earlier tribunal decisions, some private-hire companies acting as principals argued that TOMS could apply to domestic passenger journeys, allowing VAT to be calculated on the margin rather than the full fare. HMRC disputed that interpretation. Although the Upper Tribunal ruled in Bolt’s favour in March 2025, the Court of Appeal allowed HMRC’s appeal in June 2026. The Finance Act 2026 also excludes qualifying taxi and private-hire journeys from TOMS from 2 January 2026, subject to limited travel-package exceptions. 

When did the new VAT rule start?

The exclusion from TOMS applies to journeys supplied on or after 2 January 2026. Since that date has now passed, all affected journeys are subject to the new rules.

Who pays the VAT under the new rules?

If a private-hire operator acts as principal and is VAT-registered, it accounts for VAT on the full fare. Where an operator acts as an agent, it generally accounts for VAT on its commission, while the driver is responsible for VAT on their own taxable supplies if they are VAT-registered or required to register. The current VAT registration threshold is £90,000. 

Will fares outside London go up?

Outside London, operators may continue using an agency model and pay VAT only on their commission. If operators adopt this model, the new rules may not result in VAT being charged on the full fare where the driver is not VAT-registered, although individual operators may still change their pricing. However, regional authorities could tighten their licensing rules, so passengers should verify their local operator’s pricing.

Are there any exceptions?

Yes. The new legislation still allows TOMS to apply when the taxi journey is supplied as part of a wider travel package – for example, a hotel booking that includes a transfer. In these cases, the ride is considered ancillary to the main travel service.

Do Uber drivers in the UK have to pay 20% VAT on fares? 

Individual self-employed Uber drivers only account for VAT if their turnover exceeds the £90,000 UK VAT threshold. However, following HMRC VAT reforms and court rulings, ride-hailing operators must account for 20% VAT on the full fare charged to passengers rather than just their platform commission. 

How does the UK taxi tax affect private hire and Bolt drivers?

Operators now pass standard-rate VAT onto passenger fares, which impacts ride pricing and driver commission structures. Self-employed private hire drivers should monitor gross earnings and seek professional VAT advice from ACCA certified accountants regarding voluntary registration and input VAT recovery.

Can taxi and delivery drivers claim back VAT on vehicle expenses?

VAT-registered taxi and private hire drivers can reclaim input VAT on commercial vehicle running costs, fuel, maintenance, and electric vehicle charging, subject to HMRC business use proportion rules. 

How can drivers and operators prepare?

• Review contracts and business models – Determine whether you will act as principal or agent for each type of journey.
  
• Monitor earnings – Self‑employed drivers should track their turnover to see if it approaches the £90,000 VAT threshold. Exceeding it triggers compulsory registration.
  
• Update booking systems – Ensure your software applies the correct VAT rate from 2 January 2026.
  
• Communicate with customers – Be transparent about price changes to avoid confusion.
  
• Seek professional advice – Understanding VAT rules can be complex. Working with an accountant or tax advisor can help you stay compliant and minimise costs.

A UK tax tribunal decision in Story Terrace Limited v HMRC [2025] UKFTT 01554 (TC), issued on 11 December 2025, clarified how VAT applies to certain personalised publishing services. The case considered whether a company supplying autobiographical books created with professional ghostwriters was making a zero-rated supply of books or a standard-rated supply of writing services.

The tribunal allowed the company’s appeal, finding that the supply was one of books rather than a separate standard-rated ghostwriting service. The decision highlights the importance of examining the complete transaction, the customer’s objective and the relationship between the creative work and the finished publication. It does not mean that every package involving writing and printing automatically qualifies for zero-rating.

Key Points

• A UK tax tribunal ruled that the personalised publishing supplies in the Story Terrace case qualified for VAT zero-rating.
• The tribunal considered whether the company supplied books or ghostwriting services.
• The decision focused on the nature of the overall supply and what customers were purchasing.
• Writing, research and design can form part of a wider transaction, but their VAT treatment depends on the specific circumstances.
• Businesses should assess their contracts, products and actual commercial arrangements before applying zero-rating.

What Has Happened?

The case involved a UK company producing personalised autobiographical books. Customers shared their life stories through interviews and questionnaires, which professional writers used to develop a finished publication.

The service included several stages:

• Interview sessions with a ghostwriter
• Drafting and editing the narrative
• Including photographs supplied by the customer
• Designing and formatting the book
• Printing physical copies and providing a digital version

HMRC argued that the company was supplying standard-rated ghostwriting services. The company maintained that customers were principally purchasing finished books, with the writing and related work forming part of the process of producing them.

The tribunal upheld the appeal and found that the supplies were zero-rated supplies of books. The judgment illustrates why businesses should assess the transaction as a whole instead of automatically treating each activity involved in producing a publication as a separate supply.

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Understanding the Background of Zero-Rated VAT for Books in the UK

Under UK VAT rules, qualifying books and certain other printed publications are zero-rated. A 0% VAT rate is different from exemption: zero-rated supplies remain taxable supplies, and VAT-registered businesses can generally reclaim eligible input VAT, subject to the normal rules.

HMRC explains the rules in its VAT Notice 701/10. The notice was last updated on 31 July 2020 and remains the official guidance for assessing whether books and other printed matter qualify for zero-rating. It also covers certain electronic publications.

However, VAT treatment can become more complicated when a transaction combines physical goods and services, such as a printed book with writing, editing or design work.

In these situations, businesses may need to determine whether they are making a single supply or multiple supplies. HMRC guidance explains that the assessment can involve considering whether one element is the principal supply and the other elements are ancillary, or whether the components are distinct and independent.

VAT on Printed Items: Which Products Qualify for Zero-Rating?

The VAT treatment of VAT on printed items depends on the type of publication and whether it meets the relevant conditions. Qualifying books, booklets, brochures, pamphlets, leaflets, newspapers, periodicals, printed music and certain maps can be zero-rated. However, not every item made from paper or card qualifies. Businesses unsure which VAT rate applies to their products can consult the GOV.UK guide to VAT rates on different goods and services for further guidance.

For example, HMRC generally treats posters, greetings cards, diaries sold unused, address books and many stationery products as standard-rated. Some products that look similar may receive different VAT treatment because of their purpose, format or content.

Certain electronic books and other eligible electronic publications can also qualify for zero-rating under the rules introduced from 1 May 2020. However, publications devoted wholly or predominantly to advertising, or consisting wholly or predominantly of audio or video content, are excluded from that relief.

Businesses should check the relevant category in HMRC guidance before applying a zero rate. The Story Terrace decision is especially relevant when a business combines creative work with a finished printed publication, because the relationship between the services and the final product can affect the VAT classification.

Key Rules and Legal Considerations

When assessing a transaction involving goods and services, businesses should consider several factors.

1. The principal element of the supply

The assessment considers the transaction from the customer’s perspective and whether one element is the principal supply. In the Story Terrace case, the tribunal found that the supply was of books rather than a separate writing service.

2. The commercial reality of the transaction

Businesses should consider what they actually agree to provide and what the customer receives. The description used on an invoice is relevant to the records, but it does not by itself settle the VAT treatment.

3. Contractual documentation

Contracts, quotations and customer agreements can help demonstrate the nature of the supply. Businesses should make sure their documentation reflects the actual arrangement.

4. Additional or ancillary services

Writing, research, editing and design may form part of a wider supply. However, services provided independently may receive different VAT treatment from services forming part of a qualifying supply of books.

The tribunal’s decision should be applied carefully. A business supplying a printed book alongside separate, independently available services may need to assess whether it is making one supply or multiple supplies. The answer depends on the facts and the applicable VAT rules.

Who Is Affected by the Tribunal Decision?

The ruling may be relevant to businesses whose products combine creative work with printed publications, including:

• Personalised publishing businesses
• Ghostwriting and biography services
• Memoir publishing companies
• Specialist print-on-demand providers
• Businesses producing bespoke printed publications
• Companies creating corporate histories or commemorative books

Businesses in these sectors should review their own arrangements rather than assuming that the tribunal’s decision guarantees zero-rating for all similar products. The nature of the service, contractual terms and the customer’s overall purchase remain important.

Why This Matters for UK Businesses

VAT classification can affect pricing, cash flow and profitability. Standard-rated supplies are generally subject to VAT at 20%, whereas qualifying zero-rated supplies carry a 0% rate. The correct classification can therefore affect the amount charged to customers and the VAT a business accounts for.

Incorrectly applying zero-rating may lead to additional VAT liabilities, interest, penalties and disputes with customers. Businesses should assess their products and services carefully before deciding how to account for VAT.

A tribunal decision can help explain how VAT principles apply to a particular arrangement, but it should not be treated as a blanket rule for every publishing business. Businesses should consider the facts of their own supplies and the relevant HMRC guidance.

Is there VAT on books in the UK?

Most qualifying books in the UK are zero-rated rather than exempt from VAT. This means the VAT rate on eligible book sales is 0%, not that the supplies fall outside the VAT system. VAT-registered businesses can generally reclaim eligible input VAT relating to these sales, subject to the normal conditions.

However, the treatment depends on the publication and the circumstances in which it is supplied. For example, some products that resemble books are classified as stationery or other standard-rated items under HMRC guidance.

Where a book is supplied as part of a package involving ghostwriting, editing, design or other services, the business should assess whether the transaction is a single supply or multiple supplies. The Story Terrace decision provides an example of a tribunal finding that the overall supply qualified as a zero-rated supply of books, but other arrangements may have a different outcome.

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What Businesses Should Do

Businesses that supply books or combine creative services with printed products should review their VAT position carefully.

Recommended actions include:

• Reviewing contracts and customer agreements.
• Identifying the main purpose and nature of the transaction.
• Assessing whether additional services are ancillary or independent.
• Checking the relevant HMRC guidance.
• Keeping records that support the chosen VAT treatment.
• Seeking professional advice where the classification is unclear.

Businesses should also check whether their products fall within a specific category listed in HMRC guidance. Do not assume that a product qualifies for zero-rating simply because it is printed or contains written material.

VAT Notice 701/10: Guidance on Books and Printed Matter

VAT Notice 701/10: Books and printed matter is HMRC’s official guidance on the circumstances in which books and other printed matter can qualify for zero-rating. It covers qualifying formats, categories of printed products, related supplies and the distinction between single and multiple supplies.

Businesses can use the notice to check how the rules apply to their publications. Where a transaction includes writing, design, research or other services, the notice should be considered alongside the facts of the arrangement and the principles applied in relevant tribunal decisions.

If the correct classification remains uncertain, businesses may benefit from professional VAT advice before applying zero-rating.

How Apex Accountants Can Help with VAT Treatment for Publishing and Creative Services

Determining the correct VAT treatment for personalised or ghost-written books can be challenging. Apex Accountants & Tax Advisors supports businesses in reviewing the VAT classification of products and services, particularly where transactions combine physical goods with creative work.

Support may include reviewing contracts, assessing mixed supplies, conducting VAT compliance checks and assisting businesses with HMRC enquiries or disputes. Businesses can also consult the firm’s guide to VAT returns in the UK for information about reporting VAT.

Businesses involved in publishing, content creation or customised products can contact Apex Accountants to discuss their VAT position and obtain advice based on their specific circumstances.

Conclusion

The Story Terrace Limited v HMRC decision, issued on 11 December 2025, highlights how the nature of a transaction can determine whether a supply involving creative work and a finished book qualifies for zero-rating. In this case, the tribunal found that the supply was of books rather than a standard-rated ghostwriting service.

Businesses involved in publishing should review their contracts, understand the nature of their supplies and consult HMRC guidance when deciding whether zero-rating applies. The outcome of this case should not be applied automatically to every package involving books and creative services.

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Frequently Asked Questions

Is there VAT on books?

Most qualifying books in the UK are zero-rated at 0%, rather than exempt from VAT. However, some printed products are standard-rated. 

Are books zero-rated for VAT in the UK?

Most qualifying books are zero-rated for VAT. Businesses should check the relevant HMRC rules to confirm whether a particular publication qualifies.

Do ghostwriting services attract VAT?

Ghostwriting services supplied independently are generally standard-rated at 20%. Where writing forms part of a wider transaction involving a finished book, the VAT treatment may differ depending on the circumstances.

What is a single supply for VAT purposes?

A single supply occurs when different elements form one overall transaction for VAT purposes. Whether a transaction qualifies as a single supply depends on the relationship between its elements and the applicable legal principles.

How does HMRC decide the VAT treatment of mixed supplies?

The assessment may consider the commercial reality of the transaction, the customer’s main objective, the contractual terms and whether the elements form one supply or separate supplies.

Does HMRC guidance determine VAT law?

HMRC guidance explains the department’s interpretation and application of VAT rules. The legal position ultimately depends on the relevant legislation and case law.

Can VAT disputes be appealed?

Businesses may be able to appeal certain HMRC VAT decisions to the First-tier Tribunal (Tax Chamber), subject to the relevant procedures and time limits.

Are books zero-rated or exempt from VAT?

Most qualifying printed books are zero-rated, not exempt. Zero-rated supplies carry a 0% VAT rate, while exempt supplies have different rules, including different treatment of input VAT recovery.

What falls under zero-rated VAT in the UK?

Examples include qualifying books and certain other printed matter, such as eligible brochures, leaflets, newspapers and periodicals. The precise treatment depends on the product and the relevant conditions.

Does zero-rated mean there is no VAT?

Zero-rated supplies remain within the VAT system but carry a 0% rate. VAT-registered businesses must account for them appropriately and may recover eligible input VAT, subject to the normal rules.

What are examples of zero-rated items?

Examples include qualifying printed books and certain other printed matter, along with other categories specified in UK VAT legislation. Businesses should consult the relevant HMRC guidance to confirm the treatment of a particular item.