According to specialist tax site VATCalc, the UK Government will remove the ability for private hire operators to use the Tour Operators’ Margin Scheme (TOMS) from 1 January 2026. This change means operators will now need to charge VAT on the full fare, not just on their commission or margin.
DM News Commentary
Before diving into the detail, it’s important to stress that some aspects of how this will be implemented are not yet fully confirmed. While VATCalc’s analysis is credible and widely respected in the tax industry, elements of the wider impact remain educated forecasting, as official HMRC operational guidance has not yet been published. DM News will update this story as more verified information becomes available.
This is still a major shake-up for the private hire and taxi sector — and one that has been anticipated for months. Removing TOMS puts operators on the same VAT footing as platforms like Uber, Bolt, Veezu and FREENOW, who already apply VAT to fares following HMRC changes in recent years.
For many local and regional operators, TOMS was the only mechanism preventing them from having to charge VAT on the entire fare. From 1 January 2026, that protection appears set to disappear.
What does this actually mean for operators?
- All fares are expected to carry 20% VAT, unless the Government announces a special rate for transport.
- Operators will no longer be able to tax only their commission or booking fee — VAT would apply to the full fare.
- Firms will need to raise prices, absorb the cost, or restructure their operating model.
- Smaller operators who relied on TOMS to remain competitive may face the greatest pressure.
Will passenger fares rise?
Almost certainly. Operators who currently don’t charge VAT on the full fare will either:
- Increase fares by up to 20%,
- Absorb the VAT, reducing their own margins, or
- Reduce driver earnings, which many are reluctant to do given ongoing shortages.
Even though exact HMRC guidance is still pending, these are the scenarios most experts predict.
Does this affect all PHV companies?
Based on current analysis from VATCalc, yes, this change would affect any operator currently using TOMS. This includes:
- Local minicab firms
- Regional operators
- Airport transfer businesses
- Chauffeur and executive travel companies
- Any PHV operator acting as the “principal” for the journey
PHV companies that run under an agency-based model should be ok and shouldn’t be affected.
Industry concerns
- Local operators may struggle with higher fares and lower demand.
- Drivers could see fewer jobs, especially during off-peak hours.
- Airport transfer firms may be hit the hardest due to larger fare sizes.
- Some firms may attempt dispatch-only or franchise-style models to avoid principal VAT liability — but HMRC has increasingly challenged these setups.
This could become one of the most significant regulatory changes the industry has seen in decades.
DM News will continue tracking HMRC announcements to provide accurate updates as soon as details are formally released.
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