PHV VAT CONFIRMED: Chancellor Reeves applies VAT expansion to all private hire trips in today’s Autumn Budget
- Perry Richardson
- Nov 26, 2025
- 5 min read
Updated: Nov 30, 2025
The Chancellor has confirmed that full rate VAT to all private hire journeys will now apply, triggering an immediate reaction across the taxi and PHV industry, with the Licensed Taxi Drivers’ Association (LTDA) describing the shift as a defining moment in the long battle over tax treatment within the sector.
The policy closes the long-contested Tour Operators Margin Scheme (TOMS) exemption that some large operators have used for nearly a decade to reduce their VAT exposure. Under TOMS, some platforms have been able to pay an effective VAT rate far below the standard 20 percent, a position that smaller UK operators have argued distorted competition and placed them at a structural disadvantage.
Steve McNamara, General Secretary of the LTDA, said the loophole had allowed major platforms to contribute “less than 5 per cent” VAT on vast revenues, a practice he believes has cost the UK taxpayer billions.
By moving all private hire journeys into the standard VAT regime, Chancellor Rachel Reeves has signalled that the long period of inconsistent tax treatment should come to an end. The Government has been reviewing the legal and economic implications of TOMS for several years, with court challenges and HMRC rulings creating an uncertain environment for operators, drivers and local authorities. Today’s announcement provides clarity on the direction of travel, though the operational and pricing implications will take time to filter through.
Move ends long-running TOMS dispute and is set to reshape costs and competition across the UK’s Taxi and PHV sector
The policy is expected to influence the entire private hire supply chain. Operators using TOMS will now need to absorb the additional VAT cost, pass it on to passengers, renegotiate driver contractual terms or reconfigure their business models. The scale of the financial impact will vary by operator, but PHV prices could rise as the sector aligns with the traditional VAT structure used in most other comparable services.
For drivers, the effect remains uncertain. There are warnings that operators facing higher VAT bills may seek to recover costs from drivers through adjusted commission or fee structures.
Passenger demand may also shift. Any fare increases tied to VAT could influence trip volumes, particularly in price-sensitive urban and suburban markets where ride-hailing has become a core part of the transport mix. The Government has not yet set out any transitional mechanism, giving operators limited time to prepare for the fiscal change once the full implementation timetable is confirmed.
Private hire VAT rules will now diverge based on long-standing legal distinctions between London and the rest of England and Wales. In London, operators must continue contracting as principal under the 2021 High Court ruling, which means VAT-registered firms will charge 20 percent VAT on the full fare once the Tour Operators’ Margin Scheme is abolished from January 2026.
Outside London, the Supreme Court’s Uber v Sefton judgment upheld that operators may continue using the agency model, meaning the driver is treated as the supplier of the transport service. As most drivers fall below the VAT threshold, full-fare VAT is NOT charged on typical bookings, and operators only apply the 20% VAT rate to their commission where applicable. With TOMS also being removed for the whole sector, the prevailing agency model remains the main determinant of VAT treatment outside the capital, ensuring that the whole of the passengers fare does not automatically attract 20 percent VAT, just the commission.
McNamara called the decision “a victory for common sense” and said the LTDA welcomes the Government’s commitment to closing the gap between small domestic firms and multinational operators. He framed the reform not only as a tax correction but as a rebalancing of a market that he argues has been distorted for too long.
McNamara said in full: “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.”
Andrew Brem, Uber’s Regional General Manager, UK, 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.”
Nathan Bowles, CEO of Veezu, 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.”
Cristina-Georgiana Ioanitescu, President of ADCU, said: “We support the principle behind the Chancellor’s proposal. Drivers, like everyone else, rely on properly funded public services — and they want to contribute fairly. But fairness must apply across the board. The companies that dominate this industry must not use VAT as an excuse to further squeeze drivers’ incomes.
“The burden must sit where it belongs: with the app operators who profit from drivers’ labour, and with passengers through transparent, regulated pricing — not with the workers who can least afford it.”
Jonathan Main, VAT Partner at MHA, said: “The Government has just published its long-awaited response to the private hire consultation launched in April 2024. It looks like the worst possible outcome for ride hailers such as Uber and Bolt, as opposed to the status quo for more traditional private hire operators.”
Patrick Gallagher, COO of Addison Lee, said: “We welcome the Chancellor’s decision to mandate 20% VAT on standard fares from January 2026.
“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.”
More details and trade response to follow…
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