The UK Government has released official guidance confirming that private hire and taxi operators will no longer be able to use the Tour Operators’ Margin Scheme (TOMS) from 1 January 2026. According to Revenue & Customs Brief 8 (2025) published on GOV.UK, this affects operators who previously used TOMS to reduce VAT liabilities:
How the VAT Change Affects the UK Taxi and Private Hire Trade
TOMS was originally intended for holiday packages and travel services — not day-to-day taxi or private hire journeys. HMRC has now confirmed that only operators who previously used TOMS are affected.
Disclosed agent model — minimal impact
Most regional PHV operators already operate as disclosed agents, where:
- The customer contracts with the driver
- The operator charges only a booking/dispatch fee
- VAT applies only to the operator’s commission, not the full fare
HMRC confirms that this structure is not impacted by the removal of TOMS.
This aligns with the earlier Supreme Court ruling involving Delta Taxis and Uber, which clarified that operators using an agent model should not be treated as the supplier of the entire journey.
Principal (undisclosed agent) model — major changes
Operators who:
- take the full fare in their own name
- set the price
- handle customer payment
- then pay the driver afterwards
…are treated as the principal supplier of the journey.
From 1 January 2026, these firms:
- cannot use TOMS
- must apply standard VAT rules
- owe VAT on the full fare, not just the commission
This primarily impacts large app-based platforms but also any operator using a chauffeur-style or airport-transfer model where the company “owns” the booking.
Small and medium PHV operators
Most local companies (Liverpool, Manchester, Birmingham, Newcastle, Brighton, Glasgow etc.) operate as booking agents, meaning:
- They were not using TOMS
- They are not affected by its removal
- They do not need to charge VAT on full fares
Hackney carriage work
Traditional taxis working off ranks or via street hires remain unaffected.
DM News Commentary
HMRC’s update finally gives some clarity to an industry that has spent months debating VAT liabilities, business models and fairness between local firms and national platforms.
For most PHV operators using a disclosed agent model, very little changes. Their VAT exposure remains limited to booking fees, and the TOMS removal has no practical impact.
However, it’s crucial that airport transfer companies and chauffeur operators pay close attention to this guidance. Many of these businesses routinely take the full fare in their own name, then pay the driver afterwards after deducting commission. Under HMRC rules, this makes the company the principal supplier, not an agent — meaning the journey is supplied by the business, not the driver.
Under these rules and the removal of TOMS:
- VAT is due on the entire fare, not the commission
- The operator must follow standard VAT accounting
- Any business exceeding the VAT registration threshold will have to charge VAT on full fares
- The ability to reduce VAT exposure through TOMS is now eliminated
For example, if a chauffeur firm charges a customer £120, keeps £30, and pays the driver £90, VAT is calculated on £120, not £30. The same applies to many airport transfer companies who take payment upfront.
This creates a real fork in the road for some operators:
Either adjust pricing to absorb VAT, or restructure towards a transparent agency model that aligns with HMRC guidance.
With large ride-hailing platforms likely to face similar VAT pressures, the next year could reshape pricing, competition and the overall playing field in the UK’s private hire sector.
Thanks for visiting:
If you’ve got a question, story, or anything you’d like to say, head over to DriverMatty.com — I’d love to hear from you! And while you’re there, don’t forget to check out my other websites and social media channels.
