The government analysed 86 responses to the VAT Treatment of Private Hire Vehicles (PHVs) Consultation and has legislated to exclude suppliers of private hire and taxi services from the Tour Operators’ Margin Scheme (TOMS).
This follows several high-profile court rulings that have taken place between December 2021 and the summer of 2025, notably those involving:
- Uber Britannia Limited
- Uber London Limited and
- Bolt Services UK Limited
The latest rulings:
- By the Supreme Court in July 2025 in respect of the Uber Britannia Limited case upheld that Private Hire Vehicle Operators (PHVOs) operating outside of London and in England and Wales could act as agents, and
- By the Upper Tribunal in March 2025 in respect of Bolt Services UK Limited, that ride hailing services can account for VAT under the Tour Operators Margin Scheme (TOMS). HMRC has been granted permission to appeal this decision, with a Court of Appeal hearing scheduled for May 2026.
Under the TOMS, you are able to calculate VAT only on the margin – the difference between what passengers pay and what drivers receive – rather than on the full fare.
The ruling highlighted that the TOMS was not limited to traditional travel agents or tour operators; its scope depended on the nature of the services supplied, not the supplier’s status. Despite expectations that it might establish a wider precedent for similar services across the sector, the Autumn Budget 2025 set out that suppliers of PHVs will be excluded from the TOMS from 2 January 2026, except when their services are offered alongside certain other travel services.
The government will continue to review legislation on taxis and PHVs to ensure both customer safety and a fair market for different types of operators across the UK.
Background to the TOMS
Following recent court judgments, several private hire vehicle operators (PHVOs) sought to apply the TOMS to their VAT treatment. The TOMS is a VAT simplification scheme originally developed for tour operators operating across multiple jurisdictions, although some earlier rulings had allowed PHV operators to apply it.
If applied by PHVOs, the TOMS would mean:
- VAT is accounted for only on the PHVO’s retained “margin” rather than on the full fare;
- This results in an effective VAT rate of around 4%, rather than the standard 20%.
The Government has consistently held that PHVOs should not apply the TOMS to lower their effective VAT rate and has pursued this stance through ongoing litigation.
Reasoning behind the decision
Concerns have been raised about the need for certainty and consistency in the VAT treatment of PHV and taxi services, both across varying business models and in different parts of England and Wales, particularly in relation to the application of the TOMS.
To provide clarity and prevent inappropriate use of the scheme, the Government will legislate to remove PHV and taxi services from the scope of the TOMS, except where they are supplied alongside specific other travel services. HMRC will introduce this legislation through the Finance Bill 2025–26. To give businesses time to update their accounting systems, the new rules will take effect from 2 January 2026.
The standard 20% rate of VAT will continue to apply to PHV fares charged by VAT-registered businesses. The consultation had sought opinions on introducing a bespoke VAT margin scheme or providing a reduced or zero rate for this sector, but the Government has concluded that this would amount to a significant tax break that it cannot justify at this time.
How M+A Partners can help
Private hire vehicle operators should take this opportunity to review their VAT position in light of the upcoming changes. Ensuring that your VAT treatment is compliant, efficient, and aligned with the new rules is essential – particularly given the removal of PHV services from the TOMS from 2 January 2026.
If you would like tailored advice or support in assessing how these changes affect your business, please get in touch with our expert below.
