Chancellor Reeves shuts TOMS VAT loophole used by private hire firms like Uber as from today
- Perry Richardson
- 1 hour ago
- 2 min read
Private hire vehicle operators in London will no longer be able to use the Tour Operators Margin Scheme to reduce the amount of VAT paid on passenger fares as from today, following a policy change first confirmed at Budget 2025.
The measure, announced by the Chancellor, closes off a long criticised route that allowed a small number of large ride-hailing and minicab platforms to apply a specialist VAT regime intended for tour operators and holiday travel businesses. The change means these firms will now be required to account for VAT on fares in the same way as other VAT liable transport services.
The Tour Operators Margin Scheme (TOMS) is designed for genuine package travel and holiday operators, allowing VAT to be paid only on the margin made rather than the full transaction value. In practice, this can reduce the effective VAT rate from 20 percent to around 4 percent. Its use by private hire platforms has been contested for several years by the taxi trade and tax specialists.
By ending access to the scheme for London based private hire operators, the Government says it is restoring fairer competition between licensed taxis and app based minicab firms. Black cab drivers have argued that the previous arrangement allowed competitors to undercut prices through lower tax liabilities.
Removal of Tour Operators Margin Scheme ends tax advantage and levels playing field with black cabs
The Treasury estimates the reform will protect around £700 million in public revenue. Ministers say the additional receipts will support wider fiscal priorities, including reducing public debt, easing pressure on household costs and funding public services such as the NHS.
The policy applies specifically to larger operators in London that structured their booking models to fall within the scope of the Tour Operators Margin Scheme. Smaller operators outside the capital, where passengers contract directly with drivers, are not affected. Licensed London taxis are also unaffected by the change as they fall under existing standard VAT rules.
Chancellor of the Exchequer, Rachel Reeves, said: “We’re putting the brakes on the illegitimate use of a niche tax scheme to protect everyday cabbies. We’ll use the £700m a year this raises to deliver the country’s priorities - cutting the cost of living, cutting waiting lists and cutting debt and borrowing.”
Steve McNamara, General Secretary of the Licensed Taxi Drivers Association, said: “The Government’s decision to apply VAT to all private hire journeys is a landmark step for fairness and integrity in our industry. For too long, drivers and small operators paying the full 20% VAT have had to compete with online mini cab firms benefiting from a niche tax scheme.
“We welcome this move and commend the government for taking decisive action.”
Uber has recently rewritten its driver contracts across England and Wales outside London in a move that protects its exposure to the Government’s new VAT rules for private hire, just as the changes are about to come into force. This mirrors the set up of most other operators working outside the capital.
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