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