EXPLAINED: How does the Chancellor’s PHV VAT change impact taxi drivers and private hire operators?

The Government has formally confirmed that private hire vehicle operators will be excluded from the Tour Operators’ Margin Scheme (TOMS) from 2 January 2026, bringing an end to years of legal disputes and aligning all VAT treatment at the standard 20 percent rate.

The decision followed its consultation on the VAT treatment of private hire vehicles, published in November 2025, which set out how the rule changes will apply and why the Treasury rejected alternative mitigation options.

The consultation concluded that the TOMS scheme was never intended for the PHV sector and had created market distortions between firms using traditional agency models and those contracting as principal. The Treasury said ending access to TOMS would secure around £700 million a year in revenue, remove uncertainty and ensure consistent VAT treatment across regions. It also ruled out a reduced VAT rate, a zero rate, or a bespoke margin system for PHVs, citing fiscal pressure and the risk of undermining competitive balance. The Government further confirmed it would not amend VAT legislation to allow operators to be treated as agents for tax purposes if they contract as principals for transport law, arguing this would create legal inconsistencies and unfair tax advantages  .

What does it mean for Uber?

For Uber, the outcome delivers a significant operational shift. The company has relied on TOMS since the London High Court judgment required operators in the capital to contract as principal. That model allowed Uber to pay VAT only on its retained margin rather than the whole fare. With TOMS now removed, Uber will be required to account for VAT on full fares in London, while outside the capital it may continue using the agency structure established following the Supreme Court ruling in Uber v Sefton.

Andrew Brem, Uber’s UK Regional General Manager, said the Government’s decision will lead to higher prices for passengers in London and reduced driver earnings, noting the disparity created by different contractual obligations inside and outside the capital.

Brem said: “The Government’s action today to change the rules will mean higher prices for passengers in London, and less work for drivers, when people are already struggling with the cost of living.

“The courts have twice ruled that the Tour Operators’ Margin Scheme applied to operators like Uber. This decision also establishes the absurd situation where a trip in London will be taxed at a different rate than a trip anywhere else in the UK.” 

What about Veezu? Why did they welcome the news?

Veezu welcomed the clarity provided. The firm had warned throughout 2024 and 2025 that any move to mandate principal contracting nationwide would have forced operators onto the same VAT treatment Uber faces in London. Its ‘Taxi Tax’ campaign centred on maintaining agency arrangements, keeping VAT liability limited to commission fees only rather than the full passenger fare. Following the Government’s decision to rule out 20 percent VAT on the full journey price paid by the customer and handled under the agency model, CEO Nathan Bowles said the result preserves affordability and reliability for local communities. Veezu also stressed that the Supreme Court’s ruling in Uber v Sefton validated long-standing operator structures across England and Wales.

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Bowles said: “We welcome the Government’s decision to rule out 20% VAT on private hire journeys. This is the right outcome for passengers, drivers and local communities. We are pleased the Government has listened not just to operators, but to the millions of people who rely on private hire everyday to get to work, hospital appointments and family commitments. The Supreme Court’s unanimous and clear ruling in Uber v Sefton confirmed that our long-standing operating model works and keeps services affordable, reliable and safe. Today’s clarity gives everyone in the sector the stability we need to keep Britain moving.”

And what about Addison Lee? Why did they welcome the move when they are inside the London model?

Addison Lee, which already applies the standard rate VAT to its full fares, is understood to support the decision, as it removes competitive discrepancies between operators using different VAT structures. With TOMS option ending for all operators regardless of size or model, the company sees the reforms as creating a more consistent national framework, particularly across regional markets it serves both inside and outside London.

Patrick Gallagher, COO of Addison Lee, said: “We welcome the Chancellor’s decision to mandate 20% VAT on standard fares from January 2026. 

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“Addison Lee has operated as a responsible business in the heart of London for 50 years. We have always complied with regulatory guidance from TfL and HMRC and paid what we owe to the public purse. 

“Up until now, some operators have exploited loopholes to get around applying full VAT. This has put responsible operators who have complied with changed tax obligations at a significant disadvantage. 

“Today’s Budget provides much needed clarity and creates the level playing field necessary to maintain a fair and competitive marketplace in the private hire industry.”

And what about traditional taxi drivers? How are they impacted?

LTDA General Secretary Steve McNamara described the move as a long-overdue correction that stops global operators exploiting a loophole intended for traditional travel businesses. He said the change restores competitive balance for smaller operators who have historically paid VAT at the full 20 percent.

Hackney carriage drivers largely fall below the VAT threshold, currently £90,000, and will remain outside the scope of the tax under the new approach. The consultation noted that most black cab drivers legitimately do not pay VAT due to their turnover, and the Government recognised no evidence of TOMS being used within the taxi sector. Drivers who exceed the threshold will be required to register for VAT and account for the 20 percent rate, but cannot increase metered fares to recover the charge. Meter tariffs remain regulated by local authorities, meaning any VAT compliance obligation would need to be absorbed by the driver or mitigated through flat-rate or voluntary VAT schemes.

McNamara said: “Today’s decision by the Government to apply VAT to all private hire journeys is a landmark moment for fairness and integrity in our industry.

“For years, multinational behemoths like Uber and other companies with staggering global wealth and resources have exploited the Tour Operators Margin Scheme (TOMS) loophole, a mechanism designed for traditional travel companies, to pay an effective VAT rate of less than 5% on billions in revenue. This has cost the British taxpayer billions to date, creating a grossly uneven playing field for tens of thousands of small operators who have always complied with the rules.

“This change is not just about tax. It is about restoring balance to a market that has been distorted for far too long. Drivers and small businesses have been competing against global corporations that enjoy special treatment, while hardworking operators pay the full 20% VAT rate. Today’s announcement finally levels that playing field and ensures competition is based on service and quality, not tax avoidance.

“We welcome this decision and congratulate the Government on taking this decisive action to close the loophole. This is a victory for common sense, for fairness, and for the thousands of our drivers who have been disadvantaged for years.”