PRINCIPAL TO AGENCY: Uber restructures driver contracts outside of London to sidestep VAT hit from Rachel Reeves minicab tax reforms
- Perry Richardson
- 2 hours ago
- 3 min read
Uber has 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.
Under updated terms issued to drivers from January 2026, Uber has restructured its role so that it acts as an agent rather than the supplier of transport services outside of London. This aims to shift the relationship so that drivers are treated as contracting directly with passengers, transferring liability for VAT on fares away from Uber and on to individual drivers, according to the revised UK driver agreement.
The contractual overhaul unsurprisingly lands before Chancellor Rachel Reeves’s reform of VAT rules for minicab and private hire operators takes effect this month. Announced in November’s Budget, the change required operators to account for 20 percent VAT on the passenger’s fare where they remain principal to the booking, rather than using the Tour Operators Margin Scheme (TOMS) which allowed some operators to collect a marginal VAT percentage. The Treasury had estimated the measure would raise more than £700m a year.
Most operators outside of London have paid VAT only on their commission taken by acting within the Agency model, typically around a quarter of the total fare. By moving to an agency model, Uber will continue to charge VAT on that commission, while the remainder of the fare is treated as the driver’s income for VAT purposes.
Agency model rolled out outside London before full-fare VAT rule takes effect
In practice, this significantly limits the amount of VAT collected. Individual drivers are only required to register for VAT once they exceed the £90,000 annual threshold, a level that most private hire drivers are unlikely to reach. As a result, VAT will not be charged on the majority of trips arranged through the platform outside London.
The agency model substantially reduces Uber’s expected tax exposure compared with the structure assumed by the Treasury when the policy was announced. It also risks diluting the revenue impact of the reform by spreading VAT liability across tens of thousands of drivers rather than concentrating it at platform level.
The revised contract sets out that Uber provides booking, payment processing and platform services, while drivers supply transport services directly to passengers.
The approach cannot be applied in London. Transport for London licensing rules require private hire operators to contract directly with passengers, preventing the use of an agency structure. As a result, Uber remains the principal supplier in the capital, and the full fare for London journeys will become subject to VAT once the new rules take effect.
Industry figures expect this to create a divergence between London and the rest of England and Wales. In the capital, operators face a direct increase in tax costs unless fares rise or margins are absorbed. Outside London, the financial impact is likely to be far smaller for platforms, with the burden largely theoretical for drivers below the VAT threshold.
When unveiling the reform, Reeves said the change would “improve competition in our taxi industry” and ensure that “everyone pays fairly”. The policy was framed as a response to a series of court rulings that clarified the role of ride-hailing platforms as suppliers rather than intermediaries.
Uber has not disclosed how much VAT it expected to pay under the previous structure, but analysts had suggested the exposure could have run into hundreds of millions of pounds annually if the company had been required to apply VAT to full fares nationwide.
