Private hire operators urged to review contracts after budget confirms removal of TOMS access
- Perry Richardson
- 3 minutes ago
- 3 min read
Private hire operators have been advised to reassess their contractual structures after the Government confirmed that the Tour Operators’ Margin Scheme will no longer be available to the sector from January 2026.
The clarification came in yesterday’s Budget and follows months of uncertainty around the use of the VAT scheme by some ride-hailing platforms.
The Treasury’s newly published consultation response confirms that PHV and taxi suppliers will be excluded from TOMS except when paired with specific travel services. Officials said the decision is intended to provide certainty and prevent operators from using the scheme to reduce VAT liabilities to effective rates of around 4 percent, compared with the standard 20 per cent rate applied to VAT-registered firms.
Layla Barke-Jones, dispute resolution partner at Aaron and Partners and the solicitor who acted for Merseyside-based Delta Taxis in its successful Supreme Court defence earlier this year, said the Budget announcement should not be read as altering the legal position established by that ruling.
Lawyer involved in landmark Delta Taxis case says Budget move does not alter Supreme Court protections for agency-based models
The judgment upheld that, outside London, operators using an agency model are not compelled to contract as principal and therefore are not required to account for VAT on the full fare.
Barke-Jones said the Supreme Court decision remains an important safeguard for both passengers and operators across England and Wales. She added that the Government’s new stance on TOMS does not undo those protections and does not impose principal-style VAT obligations on agency-based operators. Her view is that firms operating lawfully under agency arrangements should not see fares rise as a result of today’s announcement.
Barke-Jones warned that, regardless of whether operators have ever relied on TOMS, the removal of access heightens the need for robust contractual clarity. She urged PHV businesses to review agreements with drivers and passengers to ensure the chosen operating model is reflected accurately in contracts and VAT processes. Failure to do so, she said, risks exposing firms to tax or operational consequences.
Her advice aligns with the Government’s own assessment that inconsistent business models and a lack of certainty have driven distortions across the sector. The Treasury’s response highlights concerns raised by operators during the consultation about varied contractual approaches and the impact of legal uncertainty on competition and compliance .
As operators digest the Budget measures, the central issue for many will be ensuring that their business structure matches the VAT position they intend to apply. While the removal of TOMS aims to create consistent treatment, the market remains split between agency and principal approaches, each carrying different administrative and tax outcomes.
Barke-Jones said: "In today's Budget it was revealed that private hire vehicle operators and ride-hailing service operators would be excluded from a scheme known as TOMS (Tour Operators’ Margin Scheme) from January 2026. This is a scheme the chancellor said had originally been intended for 'coach tours', allowing some operators to benefit from paying less VAT.
"Following the Supreme Court decision earlier this year involving Uber and our client, Merseyside-based DELTA Taxis, this announcement will not affect fares from those private hire firms that use an agency based model. That decision was a major victory for consumers and the private hire industry across England and Wales, and today’s Budget announcements do not undo the legal protections for operator business structures that we fought so hard to preserve at the Supreme Court and underlines the importance of that decision.
"Our advice to firms operating in the private hire sector, whether or not they are currently using the TOMS scheme, is to review their contractual arrangements as soon as possible to ensure compliance and implementation of the correct business model for their organisation. Businesses will need to ensure they don’t fall foul of the potential tax, regulatory and other implications by not having the correct measures and contractual arrangements in place for their intended model, today’s announcement makes that all the more important.
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