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Treasury steers away from estimating how 2028 VAT changes could affect private hire fares and driver numbers
The Treasury has distanced itself from providing an estimate of how planned VAT changes for large private hire vehicle operators could affect passenger fares or the number of drivers, saying those decisions will be made by individual businesses.
Financial Secretary to the Treasury James Murray said: “The measure itself does not place any new VAT obligations on drivers nor does it change existing employment or worker status protections. Decisions about fares, commission rates and commercial arrangements are matters for individual businesses.”
The response followed two questions from Richard Holden, the Conservative MP and Shadow Transport Secretary. Holden asked what assessment the Chancellor had made of the proposals’ potential effect on passenger fares, drivers’ earnings and, in a separate question, the number of private hire drivers.
The Government’s answer restated the policy announced at Budget 2026. From 2 January 2028, larger operators with annual fare turnover above a threshold still to be set will be treated as making the passenger transport supply themselves. If VAT-registered, they will have to account for 20% VAT on the full fare.
The threshold has not yet been confirmed. The Government has said it will consult on the level, with £50 million in annual fare turnover identified as its lead option. The consultation is also intended to inform the policy’s final design and implementation.
The change follows years of legal and policy debate over how VAT applies when a private hire journey is booked through an operator. Under the current framework, the party treated as making the supply is responsible for accounting for VAT. The Government says the new rule is intended to align the treatment of larger operators, particularly where operators outside London act as agents for drivers.
The VAT rate on taxi and private hire services remains 20% for VAT-registered businesses. A separate Budget 2025 measure excluded taxi and private hire journeys from the Tour Operators’ Margin Scheme from 2 January 2026, subject to limited exceptions where journeys are supplied with certain other travel services. That change concerned the use of the margin scheme; the 2028 measure addresses which party is treated as supplying the journey for VAT purposes.
The Treasury’s answer does not quantify whether operators will pass any additional VAT cost to passengers, absorb it, or adjust driver commissions or other commercial terms. It says the policy does not itself create new VAT obligations for drivers or alter employment and worker-status protections, while leaving fares and commission arrangements to individual businesses.
