The Autumn Budget 2025 brought significant changes for UK taxi and private hire vehicle operators. As of 2 January 2026, new legislation means VAT-registered operators must charge the standard 20% VAT on the full fare - no more using the Tour Operators' Margin Scheme to pay VAT only on profit margins.
If you operate a taxi business or private hire vehicle (PHV) company in the UK, these VAT changes will directly impact your pricing, accounting, and compliance obligations. Whether you're an individual driver, a fleet operator, or run a business like Uber or Bolt, understanding the new rules is essential to stay compliant and avoid unexpected tax bills. This guide breaks down everything you need to know about the 2026 VAT changes for taxi and PHV operators.
Standard rate on full fare
Effective date of changes
For standard taxi journeys
Understanding the fundamental VAT obligations for taxi and private hire vehicle operators in the UK
You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period. This applies to all UK businesses, including taxi and PHV operators.
As of 2 January 2026, taxi and private hire journeys are liable to VAT at the standard rate of 20% on the full fare.
Important: As of 2 January 2026, the agency model can no longer be used for taxi and PHV operations. All operators must now use the principal model.
Operators in London face a specific legal requirement that affects how they must structure their driver contracts.
The Tour Operators' Margin Scheme no longer applies to standard taxi and PHV journeys - here's what you need to know
Previously, some larger taxi and PHV operators used the Tour Operators' Margin Scheme to pay VAT only on their profit margin - effectively around 4% of the fare. This meant significantly less VAT than charging 20% on the full amount.
As of 2 January 2026, this is no longer permitted for standard taxi and private hire vehicle journeys.
If a taxi fare is £50 and the operator is VAT-registered:
Fare (before VAT)
£50.00
VAT at 20%
£10.00
Total to Passenger
£60.00
What you need to do to stay compliant with the new VAT rules for taxi and PHV operators
If you're VAT-registered, you must provide a VAT invoice to any VAT-registered customer who requests one.
Receipts from VAT-registered operators must include specific information for customers.
You can typically reclaim VAT on certain business expenses, subject to specific rules.
Recovering VAT on motor vehicles is subject to special rules. You can usually reclaim all the VAT if the vehicle is:
Common questions about VAT for taxi and PHV operators
The principal model means you contract directly with the passenger and must account for VAT on the full fare. Under the agency model (available outside London only), you act as an agent for self-employed drivers and only account for VAT on your commission. In London, operators must use the principal model, meaning 20% VAT applies to the entire fare.
You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period. However, you can also register voluntarily even if you're below the threshold - this allows you to reclaim VAT on your business expenses like fuel, vehicle maintenance, and equipment.
As of 2 January 2026, TOMS is no longer available for standard taxi and private hire vehicle journeys. You must charge 20% VAT on the full fare. TOMS only remains available if the taxi journey is part of a wider travel package, such as booked alongside hotel accommodation or a package holiday.
You can typically reclaim VAT on business expenses including fuel (subject to specific rules), vehicle maintenance and repairs, insurance, office supplies, mobile phones, and professional fees. However, VAT recovery on purchased vehicles is often limited to 50% due to mixed business and private use assumptions.
Platforms like Uber and Bolt must charge 20% VAT on the full fare for journeys in the UK (and are required to operate under the principal model in London). This affects both the platform's pricing and what drivers receive. The changes apply to all VAT-registered operators, not just traditional taxi companies.
For official technical details, refer to HMRC VAT Notice 700/25: "How VAT applies to taxis and private hire cars" and Revenue and Customs Brief 8 (2025) on the Tour Operators' Margin Scheme changes. These documents provide the authoritative guidance on VAT treatment for taxi and PHV operators.
Our expert accountants understand the taxi and PHV industry. We can help you understand the new VAT rules, ensure compliance, and optimise your tax position.
Official HMRC Resources: