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Budget bombshell for private hire firms as Government plans full 20% VAT on fares but smaller operators could escape
The Government has revealed plans to make large private hire operators like Uber, Bolt and other ridehail giants liable for VAT on the full value of passenger fares from January 2028, with a proposed £50million annual turnover threshold potentially protecting smaller firms.
Further details buried within the Chancellor’s Autumn Budget 2026 documents have revealed how the Government intends to apply full 20% VAT to larger private hire vehicle (PHV) operators, potentially creating a significant gap between national booking platforms and smaller local businesses.
The measure, due to take effect from 2 January 2028, will target operators whose annual fare turnover exceeds a threshold that has yet to be finalised. The Government has identified £50million in annual fare turnover as its preferred option, subject to consultation.
Within Chancellor John Healey’s first Budget announcement, he committed to addressing differences in the VAT treatment of larger taxi and private hire businesses “no matter where they are located”.
The Chancellor told Parliament: “I will resolve the question of VAT for larger taxi companies, ensuring they play by the same rules, no matter where they are located, while still protecting smaller local firms.”
Under the proposals, qualifying private hire operators would be treated as the supplier of passenger transport services for VAT purposes, even where they currently operate under an agency arrangement in which the driver is legally responsible for providing the journey.
This would mean that larger operators could no longer rely on an agency business model to account for VAT only on their commission or booking fees. Instead, it is understood that VAT would become payable on the full value of qualifying passenger fares.
The official Budget documentation states that the Government will consult on the threshold and the final design of the measure before implementation. The £50million figure is therefore a proposal rather than a confirmed exemption limit.
The announcement is seen to be huge news for the private hire sector as smaller operators using genuine agency arrangements could remain outside the new deeming rules, while larger competitors would face VAT obligations on the full passenger fare.
For passengers, the eventual impact will depend on whether affected operators absorb the additional tax cost, increase fares or alter their commercial arrangements with drivers.
For drivers working through major booking platforms, changes to fare structures, commission rates and the way operators calculate payments could become important considerations ahead of the January 2028 implementation date.
How the announcement follows the earlier TOMS VAT changes
The latest proposal builds on the Government’s earlier decision to prevent private hire operators from using the Tour Operators’ Margin Scheme (TOMS) to reduce their VAT liabilities.
That reform, announced in the 2025 Budget and effective from 2 January 2026, prevented taxi and private hire journeys supplied on their own from qualifying for a specialist VAT scheme originally designed for travel businesses.
Some operators had used TOMS to account for VAT on their margin rather than on the full value of a journey. The Government introduced legislation following legal proceedings involving HMRC and private hire operator Bolt.
However, removing access to TOMS did not automatically mean every private hire operator became liable for VAT on the full passenger fare. The VAT treatment could still depend on whether the operator acted as principal or as an agent arranging a journey between a driver and passenger.
The new 2026 Budget proposal seeks to address that remaining distinction for larger operators by treating them as suppliers of the transport service for VAT purposes, regardless of an agency arrangement.
Government forecasts hundreds of millions in additional VAT revenue
The Treasury’s Budget 2026 policy costings indicate that the measure is expected to raise £95million in 2027-28, increasing to £385million in 2028-29.
Receipts are then forecast to reach £395million in 2029-30, £410million in 2030-31 and £425million in 2031-32.
These estimates suggest the Government expects the changes to generate substantial additional revenue from the largest private hire operators, although the final amount will depend on the legislation, threshold and commercial responses.
The £50million threshold could become a major consideration for operators approaching that level of annual fare turnover.
The consultation will also be important in determining how turnover is calculated, particularly for operators working across multiple licensing areas or using different corporate structures.
