‘TAXI TAX’: Government to publish long-awaited response on private hire vehicle VAT treatment ‘soon’
- Perry Richardson
- 59 minutes ago
- 2 min read
The Treasury has confirmed that the Government will publish its long-awaited response to the consultation on the VAT treatment of private hire vehicle (PHV) services “soon”.
In a written question to the Chancellor of the Exchequer, Shadow Transport Secretary Richard Holden asked when the Government planned to release its findings from the consultation. Exchequer Secretary Dan Tomlinson said the issue was being taken seriously and that the Government “recognises the importance of clarity to the sector”. He added: “The Government will therefore publish a response to the consultation on the VAT treatment of private hire vehicles soon.”
The update follows growing pressure from operators, drivers and passengers who have been waiting more than a year for clarity. The consultation, which closed in mid-2024, sought views on how VAT should apply to PHV bookings after a series of court rulings involving Uber changed the legal landscape for the industry.
In 2021, the High Court ruled that London PHV operators must contract directly with passengers rather than act solely as booking agents for drivers. This made operators legally responsible for each journey and, crucially, meant VAT-registered firms were liable to charge 20% VAT on full fares. A further case in 2023 extended that principle across England and Wales, although the decision was overturned on appeal earlier this year.
While these rulings did not directly change tax law, they left the sector facing significant uncertainty. Larger operators, particularly in London, began adding VAT to fares, while many smaller regional firms continued operating under the previous agency model. The Treasury estimated that applying VAT uniformly could raise around £750 million a year but there is an industry acknowledged that it might also lead to fare increases and reduced demand.
The consultation explored whether changes to VAT or PHV legislation could reduce the financial impact. Options considered included a reduced 5% VAT rate, zero-rating PHV services, or creating a new margin scheme where VAT would apply only to an operator’s commission. However, each alternative carried substantial costs to the public finances, and ministers expressed doubts that any savings would be passed on to passengers.
Media speculation is pointing to the Treasury bringing in a single VAT rate across all PHV fares when the response is published, potentially as part of the Autumn Budget later this month. If implemented, the decision would bring legal consistency across England and Wales but could create financial strain for smaller operators outside London.
