Government shuts VAT loophole that used by some taxi firms to lower their tax bill

"People who use private taxi operators such as Uber might see the cost of a ride rise after the government closed a rather complicated tax loophole, which could lead Uber and other companies to pay a higher tax rate on their fares. The situation applies to the Tour Operators Margin Scheme ( TOMS), a mechanism originally designed for traditional travel companies bundling services such as hotels and transport into a single sales package."

"However, the government has alleged that some private hire vehicle operators are claiming that taxi rides qualify for the tax scheme, so they are only charging VAT on the profit made, rather than the full taxi fare. According to the London Taxi Drivers Association (LDTA), which represents Black Cab drivers, Uber is paying an effective VAT rate of just 5% compared to the 20% paid by other businesses."

Government action closes a loophole that let some private hire operators apply the Tour Operators Margin Scheme (TOMS) to taxi fares. Under TOMS VAT is applied to the margin between customer payment and supplier costs rather than the full selling price, a rule created for bundled cross-border tour packages. HMRC alleges some private hire operators wrongly treated rides as qualifying, reducing VAT paid. Uber faces a £386 million VAT assessment and is appealing HMRC's withholding of a refund. A prior appeal win applied only outside London. From 2 January 2026, London private hire and national principal operators will pay VAT in the same way.

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