Government VAT ruling prompts warnings of higher London minicab fares, says Uber
- Perry Richardson
- 4 minutes ago
- 2 min read
The Government’s decision to end the use of the Tour Operators’ Margin Scheme for private hire vehicle operators has triggered criticism from Uber, which warns that passengers in London will face higher fares and drivers could see reduced work volumes once the change takes effect.
Andrew Brem, Uber’s Regional General Manager for the UK, said the revised approach will result in additional costs for London journeys at a time when households continue to grapple with pressure on living expenses.
He noted that tribunals had previously found the margin scheme applicable to private hire firms, and said the Budget move introduces what he described as an inconsistent tax position between the capital and the rest of the country.
Under the new framework, merchant private hire operators will pay 20 percent VAT on the full fare charged to passengers. Agent operators, who arrange bookings but do not contract directly with riders, will continue to pay 20 percent only on the margin. According to the Budget papers, most traditional black cab drivers fall outside the VAT regime because their earnings do not exceed the £90,000 threshold, meaning the majority of their work remains VAT free.
Uber argues new post-Budget tax rules will leave London passengers paying more than those in the rest of the UK
The effect in London is expected to be more acute. Regulation in the capital requires all licensed private hire operators to contract directly with passengers, which compels them to operate as merchants. That contrasts with the position outside London, where the Supreme Court has confirmed that operators can use an agency model. Firms working in those areas will therefore avoid VAT on the full fare, paying instead on the margin only.
This regulatory divergence means that every private hire trip completed by a London registered driver will attract 20 percent VAT on the total fare, not just the commission charged to the drivers. Industry figures say these additional costs are likely to be passed on to passengers, which could erode demand and reduce earning opportunities for drivers. Operators outside the capital are not expected to face the same uplift, setting up a differentiated cost base that some market participants argue will be difficult for companies to manage.
The Treasury’s decision follows long running debate over the use of the margin scheme by ride hailing platforms. Uber maintains that two separate tax treatments for identical services risks fragmenting the national market.
Although the Government has set out the broad structure of the policy, there is still uncertainty around how operators plan to adjust pricing and contractual arrangements ahead of the changes.
Andrew 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.”
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