VAT ON JOURNEYS: How might taxis win back passengers if private hire operator fares rise by 20%?
- Perry Richardson
- Sep 26, 2025
- 2 min read
The Treasury’s reported 20% VAT charge on private hire journeys has the potential to reshape the balance between taxis and private hire across the UK. While industry insiders are warning of pressure on drivers and passengers, some taxi drivers are asking whether this shift could bring new opportunity for the hackney carriage trade.
Potential for taxis to become more competitive
For years, private hire operators have undercut taxis on price, particularly in areas with strong app-based platforms. If VAT is added in full to fares, the gap between a black cab or local Hackney carriage and a private hire car could narrow, or even swing in favour of the taxi.
Traditional taxi drivers, usually self-employed, are not directly impacted by the new measure as they do not need to work through an operator and are the principle provider of the service. Regulated fares set by licensing authorities are subject to VAT, but most taxi drivers fall under the VAT registration threshold, meaning no additional charge is passed onto passengers.
If private hire costs increase by 20%, taxis could present themselves as the more cost-effective option, especially for short, everyday trips where the difference in price is most visible.
Should taxi drivers advertise this?
A key question is whether taxi trade representatives and drivers should actively advertise their exemption if any new charge is added. A clear message that hackney carriage fares will not rise because of the “taxi tax” could attract passengers put off by higher private hire prices. Some local authorities or trade groups may look at marketing campaigns to underline that message.
However, there are risks. Public understanding of the difference between taxis and private hire vehicles has often been limited. The phrase “taxi tax” itself could cause confusion, with passengers assuming that all types of taxis are covered by the VAT rise. If that misunderstanding takes hold, it could harm the taxi trade’s ability to benefit from the price advantage.
Tackling confusion
The industry is split into two distinct licensing systems: taxis (Hackney carriages, including London’s black cabs) and private hire vehicles (booked via operators). The VAT measure is likely to target the operator side of the industry only.
For taxis to take advantage of the potential opportunity, trade representatives may need to step up communication explaining that they remain outside the scope of VAT charges. That could involve clear signage in cabs, social media campaigns, and local press engagement. Without this, the term “taxi tax” risks muddying the waters and leaving passengers unsure who is affected.
Even with potential price advantages, taxis may face challenges. Increased demand could stretch supply in some areas, particularly where driver numbers have fallen since the pandemic.
Nonetheless, if VAT pushes private hire fares up significantly, taxis may be in a rare position to capitalise. The real test will be whether the trade can present a united and clear message to the public about who is, and who is not, paying the “taxi tax”.
