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TIGHT LIPPED: Treasury offers no fresh taxi and private hire VAT consultation as operators remain divided over current rules
The Treasury has offered no indication that it will hold a fresh consultation on VAT applied to taxi and private hire fares, leaving operators to work within rules that continue to produce different commercial outcomes across the sector.
Richard Holden, the Shadow Secretary of State for Transport, asked whether the Chancellor of the Exchequer’s department would consult on changes to VAT on taxi and private hire fares.
Treasury minister, James Murray, did not directly answer that part of the question in a written response published this week. He announced no consultation, review or timetable for further policy work.
Instead, Murray restated the Treasury’s established position that private hire services supplied by VAT-registered businesses are subject to the standard 20% rate
He said: “Private hire vehicle (PHV) services provided by VAT-registered businesses are, and always have been, subject to the standard rate of VAT (20%).”
The minister also pointed to the measure announced at Budget 2025, which removed taxi and private hire journeys from the Tour Operators’ Margin Scheme, known as TOMS.
Murray added: “At Budget 2025 the Government announced that it would put an end to the use of a VAT administration scheme, designed for the tour operator sector, by a small number of large private hire vehicle operators seeking to pay a lower rate of VAT than others. These changes came into force on 2 January 2026.
“This does not affect smaller operators outside London whose drivers contract directly with passengers, or black cabs, neither of which have attempted to make use of this scheme.”
TOMS was created for businesses selling travel services, including package holidays, but some large private hire platforms operating as the principal supplier of a journey had used it to calculate VAT on their retained margin rather than the full passenger fare.
However, removing access to TOMS did not settle the wider argument about how taxi and private hire journeys should be taxed. The continuing dispute centres on whether the licensed operator or the driver is legally supplying the journey.
An operator acting as principal accepts responsibility for providing the transport service and, when VAT-registered, must account for VAT on the full fare. An operator acting as an agent generally accounts for VAT only on its booking or commission charge, while the driver supplies the journey directly to the passenger.
The distinction is particularly important because most individual taxi and private hire drivers have turnover below the £90,000 VAT registration threshold. Where the driver supplies the journey through an agency arrangement, VAT will not normally be due on the driver’s part of the fare unless that driver is VAT-registered.
Why some operators remain unhappy
TaxiPoint has previously reported that the present system creates a significant geographical and commercial divide.
Private hire operators licensed in London are required to contract with passengers as principal following a 2021 High Court ruling. VAT-registered London operators must therefore account for 20% VAT on the full fare now that TOMS is unavailable.
Outside London, the legal position is different. The Supreme Court’s 2025 judgment in the Uber v Sefton case confirmed that private hire operators in the rest of England and Wales are not universally required to adopt the principal model. They can continue acting as agents where their contracts and business arrangements support that status.
Our analysis following Budget 2025 noted that this means a journey booked through a London operator may attract VAT on the complete passenger price, while a comparable booking handled through an agency model elsewhere may attract VAT only on the operator’s commission.
That difference explains why some national and London-based operators remain dissatisfied. Their concern is not simply the headline 20% VAT rate, but the amount against which that rate is calculated.
TaxiPoint previously reported comments from Uber warning that removing TOMS would increase London passenger prices, reduce demand and leave less work available for drivers. The company also argued that the different contractual requirements inside and outside the capital created an inconsistent tax outcome for similar journeys.
Operators cannot necessarily pass the full cost directly to passengers without affecting demand. If VAT is added to the previous journey price, the customer pays more. If the operator keeps the passenger price unchanged, the tax must be absorbed through its margin, changes to driver payments or a combination of the two.
Regional private hire businesses have different concerns. Some feared that a universal principal model would have brought the entire passenger fare within the VAT system, even where the operator regarded itself as a booking agent connecting passengers with self-employed drivers.
Veezu welcomed the Government’s decision not to impose principal contracting nationally. The company argued that retaining the agency model outside London protected the affordability and reliability of local private hire services.
Other operators supported the closure of TOMS. Addison Lee, which was already accounting for VAT on full fares, said the reform removed a competitive discrepancy between businesses using different VAT structures.
Taxi representatives also supported the change. Most self-employed black cab drivers fall below the VAT registration threshold and contract directly with their passengers. Taxi organisations argued that allowing major private hire platforms to pay VAT only on their margins had given those businesses an advantage unavailable to competitors paying VAT under the ordinary rules.
Previous consultation rejected alternative VAT options
The Government has already conducted one consultation on private hire VAT. It ran between April and August 2024 and received 86 responses from drivers, operators, trade associations and licensing authorities.
Three broader tax options were considered: reducing VAT on private hire services to 5%, applying a zero rate, or establishing a dedicated margin scheme under which VAT would be calculated on the difference between the passenger fare and the amount paid to the driver.
The Treasury rejected all three. It estimated that a 5% rate would cost the Exchequer about £1 billion annually, a zero rate would cost £1.5 billion and a dedicated margin scheme would cost approximately £750 million a year.
TaxiPoint reported at the time that respondents were sharply divided.
Some operators believed a reduced rate or margin scheme would protect passengers and drivers from higher costs. Others argued that preferential treatment for private hire services would disadvantage taxis and reward larger businesses with the resources to manage a more complicated VAT scheme.
The resulting policy removed TOMS but left the wider principal-versus-agent distinction in place. That gave businesses greater certainty over the tax scheme but did not produce one uniform VAT outcome for every private hire journey.
Holden’s latest parliamentary question gave the Treasury an opportunity to say whether it would return to those unresolved matters. Murray’s response did not rule out changes indefinitely, but it offered no evidence that another consultation is being prepared.
For operators seeking a reduced rate, a bespoke margin arrangement or consistent rules across the country, the position remains unchanged. No further route towards reform has been announced, while the operational divide between London’s principal model and agency arrangements elsewhere continues.
