Reeves’ reported ‘taxi tax’ set to target private hire journeys could give black cabs a competitive boost
- Perry Richardson
- Sep 22
- 6 min read
The Chancellor Rachel Reeves is reportedly preparing to impose a 20% VAT charge on private hire journeys, a move already dubbed the ‘taxi tax’ by industry campaigners. The measure is expected to be announced in the autumn Budget on 26 November as the Treasury seeks to fill a £50bn gap in the public finances.
Despite its name, the charge will not apply to traditional taxi drivers such as London’s black cabs or Hackney carriage operators. Taxis are run by self-employed drivers who cannot add VAT to fares and typically remain under the VAT threshold. Private hire operators, by contrast, manage bookings for large numbers of licensed drivers, with company revenues exceeding the threshold, which brings them into scope for VAT liability.
The change could alter the balance between the two sectors. With private hire fares set to rise if VAT is added, taxi fares may appear more competitive in many parts of the country. This could encourage passengers to consider using local taxi services, particularly for shorter urban journeys.
Steve Garelick, GMB Union’s Regional Organiser, shared his immediate concern for drivers on social media: “So it seems after spending thousands on court cases private hire and taxi operators outside London will find journeys taxed. I am concerned that drivers’ incomes will be marginalised as operators think about customers over driver income.”
How we got here
The issue of VAT on private hire (PHV) operations has been simmering for several years. The questions originally centred on who is seen as providing the journey to the customer (the operator or the driver), how contracts are structured, what the turnover is, and whether the business is—or must be—VAT registered.
In April 2024 the UK Government published a consultation “VAT Treatment of Private Hire Vehicles” which explored how taxis and PHVs are regulated, how contracts are made, and who is liable for VAT in different scenarios.
A major turning point was a series of court rulings:
Under the 1976 Act (Local Government (Miscellaneous Provisions) Act 1976), which covers most private hire operators outside London and in many parts of England, PHVs may act either as agent or as principal, depending on how contracts are structured. Acting as principal means taking full responsibility for the journey and being liable for VAT on the full fare. Acting as agent means the operator is more of a booking intermediary, and its VAT liability is generally limited to commissions, fees, or other ancillary charges.
Under the 1998 Act (Private Vehicles (London) Act 1998), which governs PHVs in London, all operators must contract as principal. That means London-based private hire operators have been liable to account for VAT on full fares for a while.
In mid-2025 the Supreme Court decision in D.E.L.T.A. Merseyside Limited v Uber Britannia Limited clarified that PHVs under the 1976 Act (outside London) can still choose whether to contract as agent or principal. This preserves a difference between what applies in London versus outside.
How VAT works currently for taxis vs private hire operators
Traditional taxi / Hackney carriage drivers are usually self-employed. Their fares are regulated (metered or fixed by local authority), not set by private hire operators. They do not operate through an operator booking system in the same way PHVs do. Because their fares are set (metered or fixed by a local authority) and because (in most cases) they stay under the VAT threshold, they cannot simply add VAT onto fares.
If they were to exceed the registration threshold, they would have to register, but because the regulated fares do not allow surcharges, they cannot increase what the passenger pays above that regulatory limit to cover VAT. Also, being self–employed (and often with relatively low turnover compared to large PHV operators), most do not hit the threshold requiring VAT registration.
Private Hire Operators (PHOs) are different. They take bookings via a platform or dispatch operator. They may operate many vehicles and drivers. Their revenue (overall fare paid by the customer, or the operator’s portion depending on contracting) likely exceeds the VAT registration threshold. Under the principal model, the operator is the provider of the service to the passenger, responsible for everything, and thus liable for VAT at standard rate (20%) on the full fare. Under the agent model, the operator is more like a middleman: liable only on their commission or fees, while the driver handles the fare portion (if they are VAT registered).
The VAT registration threshold (recently creeping up) means that many operators are already subject to VAT (or close to it). For drivers, the threshold is important: if a self-employed driver (without an operator) exceeds that threshold, they must register and collect VAT. But many traditional taxi drivers do not exceed it, or operate under turnover limits that allow them to stay under.
HMRC’s Notice 700/25 provides the formal guidance of how VAT applies to taxis and private hire cars, and differentiates between agent vs principal contracting, self-employed drivers vs operators, etc.
What the proposed “taxi tax” change would do, and why it matters
What is being reported now is that the Treasury may use the autumn Budget to formalise something close to a blanket rule that would treat more private hire journeys (or perhaps all of them) in such a way that VAT at 20% must be added to fares, via the operator (or via the charged service) rather than leaving room for agency models, or depending on contracting arrangements.
This is being labelled by campaigners as the “taxi tax”. The rationale from the Treasury is that private hire fare income sitting outside VAT represents a potential revenue source, particularly to help close large deficits in public finance. It is reported in The Telegraph that the change might raise up to £750 million a year if fully applied.
Because licensed taxi drivers (black cabs, Hackney carriages) are largely untouched by the proposed change (for reasons outlined above), this may disrupt the competitive imbalance between taxis and PHVs in some areas—depending on how fares shift, how demand changes, and how operators pass on costs.
Why this does not hit traditional hackney carriage taxi drivers and what are the potential impacts?
Taxis operate under regulated fares (metered or local authority set), and many taxi drivers are self-employed. Because the fare they can charge is fixed or regulated, they cannot just add VAT on top. This means that, even if they cross VAT thresholds, their ability to recover VAT or pass it on is limited.
Many taxi drivers do not reach the VAT turnover threshold in a year, especially when they are owner-drivers. So they are not required to register or collect VAT. Even when they do, they may be constrained by regulated pricing so that what the customer pays cannot exceed what’s allowed by fare regulations.
The key distinction is who contracts with the passenger. In private hire, it’s often the operator; in taxi/Hackney carriage, the driver is directly providing the journey (even if using an operator for bookings). Because of that, operators are more exposed under VAT law. Taxis, being more directly tied to the driver, less so.
So, if the “taxi tax” is implemented in the way that’s being reported, it would make the VAT‐liable part of private hire journeys more uniform, but would still leave traditional taxis broadly outside those changes (unless the rules and definitions are altered drastically).
The possible consequences and impacts as a result might include:
Private hire fares would rise for the customer, unless operators absorb the VAT. Many operators will feel compelled to pass at least a portion of the VAT cost onto passengers, which increases fares
Taxis would become more competitive on price, especially for shorter or urban journeys, as their fares would not go up by as much (or at all). Patients, commuters, casual users might favour traditional taxis more.
Driver incomes under pressure: Even within PHVs, drivers might suffer if operators attempt to maintain margins by reducing what they pay drivers (or increasing commission), absorbing costs themselves, or shifting risk. Steve Garelick (GMB Union) has already warned that operators might focus more on customers over driver income.
Administrative burden will rise. Operators will need to ensure their contracting models, accounting, invoicing, VAT registration are in order. HMRC scrutiny is likely to increase.
Consumer behaviour could shift. Where fares rise significantly for PHVs, passengers may increasingly use Hackney carriages/taxis, particularly where those are more accessible or more economical. There could be a return to greater use of traditional taxis in some areas.
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