HM Treasury has confirmed that, from 2 January 2026, private hire platforms in London are barred from using the Tour Operators’ Margin Scheme (TOMS) to reduce VAT on fares, presented as supporting fair competition with licensed taxis.
The change, first announced at Budget 2025, amends section 53 of the Value Added Tax Act 1994 so suppliers of taxi and private hire journeys are excluded from TOMS, except where a journey is supplied in conjunction with, and ancillary to, accommodation or other passenger transport. The operative date is 2 January 2026.
Several large operators had used TOMS to account for VAT only on their margin after paying drivers rather than on the full fare. HM Treasury says this approach can reduce the effective VAT rate on affected trips to roughly 4 percent.
Regulatory differences mean impacts vary by area. In London, a 2021 High Court declaration under the Private Hire Vehicles (London) Act 1998 requires operators to contract as principals, so VAT‑registered firms must now account for standard‑rated VAT on the full fare. Outside London, the Supreme Court on 29 July 2025 confirmed there is no equivalent requirement, allowing agency models under which the driver is the supplier.
HMRC guidance confirms the reform does not apply where a driver supplies the journey directly to the passenger, and that TOMS will continue to apply to traditional travel packages where a taxi ride is ancillary to a hotel stay or flight. These clarifications preserve the position for genuine tour operators.
Budget costings certified by the Office for Budget Responsibility estimate an Exchequer yield of £725 million in 2026–27 and between £650 million and £675 million a year through 2030–31. HMRC expects a negligible administrative impact on affected businesses.
According to HMRC, the measure provides certainty following litigation over whether private hire supplies could fall within TOMS. The Upper Tribunal held in March 2025 that Bolt’s supplies could do so; HMRC has appealed to the Court of Appeal. The new law applies prospectively, ring‑fencing past periods to the ongoing cases.
Industry responses are emerging. Reporting indicates some platforms will use agency structures outside London so the driver remains the supplier, while the capital’s rules preclude that approach and fares are expected to reflect standard‑rated VAT. Taxi representatives have welcomed the reform.
For operators contracting as principals, the practical steps are to stop using TOMS for these supplies from 2 January 2026, confirm contracting status by region, and ensure invoices and platform pricing reflect VAT on the full fare wherever the operator is principal. HMRC’s Brief 8 (2025) provides worked examples and sets out the exceptions.
HMRC notes any consumer impact will depend on operator pricing decisions. Usage data cited by the department shows taxi and PHV trips are slightly higher for women than men and higher for disabled people, indicating potential distributional effects even though the macroeconomic impact is assessed as insignificant.