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UNIFORM VAT CHARGE: Taxi Law puts forward alternative £1.1bn VAT option for private hire fares
Taxi Law has published independent research presenting an option to apply VAT to private hire fares currently outside the charge, estimating it could generate about £1.1bn a year in gross receipts.
The report, authored by Taxi Law principal Patrick J. Nolan, suggests a start date of 1 April 2027. It models VAT being applied to fares taken by drivers outside London who are below the £90,000 registration threshold. The estimate is illustrative and based on assumptions set out in the report; it is not an official forecast.
Taxi Law’s central case estimates gross VAT of £1.16bn for the 2025 financial year. It assumes that 70 percent of the estimated private hire fare base outside London relates to drivers below the registration threshold, then applies the standard 20 percent VAT rate. Depending on the assumed share of fares in scope, the report puts the gross yield between £990m and £1.32bn.
The research estimates that UK private hire fares totalled £12.6bn in FY2025, with London accounting for about £3.6bn. Taxi Law estimates national spending at £10.6bn in FY2023 and £11.8bn in FY2024. These are constructed estimates: the report says no official statistic records total UK spending on private hire journeys.
To produce its estimates, Taxi Law scales up household transport spending using an assumed share for taxi and private hire fares. It cross-checks the result against National Travel Survey data on trip frequency, distance and duration, while acknowledging that the survey data cannot separate private hire journeys from taxi trips.
The London figure is also inferred rather than measured. Taxi Law draws on licensed vehicle and driver numbers and travel data to estimate that London accounted for between 25 and 29 percent of national spending. It says the London estimate is less certain than the national total, partly because Transport for London does not hold a private hire trip count.
The report says private hire fares are not exempt from VAT. Taxi and private hire journeys in vehicles with fewer than 10 passenger seats are standard-rated at 20 per cent, but businesses with turnover below £90,000 may remain unregistered and do not charge VAT. Registration is compulsory above that threshold. Taxi Law says this creates different VAT treatment for journeys depending on where and by whom they are provided.
Its proposed option would bring some currently unregistered drivers into the charge, requiring a policy change to the threshold’s application or another mechanism to treat the relevant fares as taxable. The report does not describe this as a Government plan, and it does not set out detailed implementation or compliance arrangements.
The report says that adding the full 20 percent to a fare would turn a £10 journey into £12. But it does not predict how much of any additional VAT would be passed on to passengers and how much operators or drivers might absorb. Taxi Law says there is no published estimate of how the cost would be divided.
Taxi Law argues that recent fare increases of 10 to 12 percent, made to absorb higher fuel costs, could leave room to accommodate VAT in current tariffs if a change happened before the next round of fare revisions. This is the report’s case for proposing 1 April 2027 as a commencement date.
The option is different from the Government’s change to the Tour Operators’ Margin Scheme, which took effect for most private hire journeys on 2 January 2026. The Treasury estimates that reform will raise about £700m a year by requiring affected operators to account for VAT on the full fare rather than only their margin. The Government has said that change does not affect smaller operators outside London whose drivers contract directly with passengers.
Taxi Law cautions that the two figures should not be added together. The £700m is a Treasury estimate for a measure now in law and concerns operators that previously used the margin scheme. The £1.1bn figure is Taxi Law’s gross estimate for a separate population of fares, before allowances that could affect how much is ultimately paid to HMRC.
