NO TAXI TAX!?
GOVERNMENT CLOSES VAT LOOPHOLE FOR RIDE-HAILING APPS IN MAJOR SHAKE-UP TO PHV SECTOR
In its long-awaited response to the PHV VAT consultation launched in April 2024, the Government has confirmed that from 1 January 2026, PHV operators, such as ride-hailing platforms, will no longer be permitted to use the Tour Operator Margin Scheme (TOMS).
What is the Tour Operators’ Margin Scheme (TOMS)
TOMS is a special VAT accounting regime for businesses that buy in travel services (hotels, transport, tickets) and resell them as part of travel packages. Under TOMS, the operator accounts for VAT only on its margin (the difference between what it charged customers and what it paid suppliers) rather than charging 20% VAT on the full retail price. As part of the trade-off, businesses applying TOMS cannot reclaim input VAT on the costs they buy in.
How ride-hailing platforms used (or argued they could use) TOMS
Some platform operators argued their model was analogous to a tour operators, i.e., the platform arranges and bundles travel (a passenger journey) by buying in transport from a driver and reselling that journey to a passenger. If the platform is treated as the principal (i.e., supplying the service rather than merely acting as an agent), it could apply the TOMS SCHEME and account for VAT on its margin instead of 20% of the full fare. This treatment lowered VAT cash turned over to HMRC because the margin was much smaller than the full fare.
Traditional operators unchanged
Jonathan Main, VAT Partner at MHA, described the decision as “the worst possible outcome for ride hailers such as Uber and Bolt,” noting that more traditional private hire firms will see “a status quo”.
The consultation outcome confirms no change for operators acting as agents for cash fares, nor for private hire drivers themselves, and the standard 20% VAT rate will continue to apply to fares charged by VAT- registered businesses. However it ruled out changes to VAT legislation that would permit PHV operators to be
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treated as agents in all cases, maintaining the existing framework that restricts when agency status can apply.
KPMG accountants state the following on their website:
“Whether a PHV business acts as agent or principal is typically driven by the PHV regulatory regime, with recent court decisions impacting on the VAT treatment.
The 2021 Supreme Court decision in Uber BV and others (Appellants) v Aslam and others (Respondents) confirmed that under the Greater London regulatory regime, operators must act as a principal (rather than an agent) and buy in the taxi ride from the independent driver and supply it on to the traveller.
Following that decision, many PHV operators (acting as principal) began accounting for VAT under TOMS on their supplies in the UK, and not just in Greater London.
HMRC then challenged the use of TOMS and Bolt Services UK Ltd moved forward as the lead case. HMRC has now lost at both the First Tier Tribunal and the Upper Tribunal with an appeal hearing at the Court of Appeal scheduled for May 2026.
In this, the Government has pre-empted the outcome of this litigation for future periods, specifying that certain PHV supplies fall outside TOMS, so the ongoing litigation will only have retrospective impact - effectively moving the goalposts from 2 January 2026.
In a recent regulatory decision in connection with the regime outside of London, the Supreme Court ruled that a PHV operator has the choice of acting as a principal or a disclosed agent.
As a disclosed agent the PHV operator would only be liable to account for VAT on its agency fee, which would be broadly equal to the margin for a similar business undertaken as principal under TOMS.
DECEMBER 2025 PHTM
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