VAT Reform for London Taxi and PH Trade: How the Shake-Up Will Impact
In the first week of January 2026, the UK government dropped a big announcement for London’s transport industry; a shake-up to how VAT is charged on private hire journeys that could ripple out across the taxi trade, PH drivers, operators and suppliers.
The change targets a tax treatment that — until now — allowed some large app-based PH firms to use a niche VAT rule known as the Tour Operators’ Margin Scheme (TOMS) to reduce their VAT bill. With the Treasury now removing that option for London journeys where the operator is the contract party, many are asking what it actually means for fares, competition and life on the ground.
Here’s what’s been said so far — and what it might mean for the capital’s taxi and PH market.
What’s Changed: TOMS Out for London PH VAT
Under TOMS, VAT is charged only on a company’s margin rather than the full customer fare — a system originally designed for package travel businesses. Until this week some large ride-hail platforms were able to use this treatment for PH trips in London, which significantly reduced their VAT liability compared to the standard 20% rate.
From early January 2026, the Treasury has made clear that this tax treatment can no longer be used by operators where they are treated as the “principal supplier” of transport (as is required under TfL for most app-based operators in the capital). Instead, these firms must account for VAT on the full fare for London journeys. Other operators, such as independent drivers outside London who contract directly with passengers, aren’t affected in the same way.
The Treasury’s messaging has been unequivocal: the change is about fairness and fiscal impact.
As Chancellor Rachel Reeves put it in the official press release:
“We’re putting the brakes on the illegitimate use of a niche tax scheme to protect everyday cabbies. We’ll use the £700m a year this raises to deliver the country’s priorities – cutting the cost of living, cutting waiting lists and cutting debt and borrowing.”
— Rachel Reeves, UK Chancellor, HM Treasury press release (source: gov.uk)
That quote captures both the fairness argument and the revenue framing — the government estimates around £700 million per year could be generated under the new approach.
The Industry Response
There’s been notable support from the licensed taxi sector.
Steve McNamara, General Secretary of the Licensed Taxi Drivers’ Association (LTDA), welcomed the move as “a landmark step for fairness and integrity in our industry.” He said:
“For too long, drivers and small operators paying the full 20% VAT have had to compete with online minicab firms benefiting from a niche tax scheme. We welcome this move and commend the government for taking decisive action.”
— Steve McNamara, LTDA, HM Treasury press release (source: gov.uk)
That sentiment is likely to resonate with many black cab drivers and smaller fleet owners who have long argued platforms’ different tax treatment distorted competition in the market.
However, not all industry responses have been positive. Large private hire platforms, including Uber, have warned about potential consequences.
As reported by BM Magazine, Uber’s UK general manager Andrew Brem signalled concern that the VAT change could translate into higher prices for passengers in London, and could reduce earnings opportunities for drivers if demand softens:
“This could lead to higher prices for passengers in London and fewer earnings opportunities for drivers,”
— Andrew Brem, Uber UK, quoted in BM Magazine (source: bmmagazine.co.uk)
Uber has also pointed to past legal findings that TOMS applied to its operating model, arguing that the new treatment creates inconsistency between London and the rest of the UK.
So What Happens Next?
Right now, it’s early days — and the practical impact will depend heavily on how operators recalibrate pricing and contracts in response to the change. But there are some things we already know:
1. Pricing Strategies Will Be Revisited
Without TOMS, platforms will face higher VAT costs on London journeys. Depending on their commercial model, this may be reflected in fare prices — which is exactly the concern raised by Uber.
2. Drivers and Smaller Operators Get a Clearer Field
For many drivers and smaller operators who have always paid 20% VAT on their fares, this change removes one long-standing competitive distortion. Instead of competing against tax treatment, the focus moves back to service quality, reliability and passenger experience.
3. Two-Tier VAT Landscape Could Persist
Outside London, many platforms operate as agents rather than principals, meaning they charge VAT only on their commission rather than the full fare. Because TfL mandates a principal relationship in the capital, this VAT distinction now looks set to create a two-tier VAT landscape — arguably blurring the lines between regulatory competition and fiscal treatment.