Millions of taxi passengers across the UK are set to be affected by a major tax overhaul announced in the Autumn Budget. The change will see private hire vehicle operators, including giants like Uber and Bolt, required to pay VAT for the first time, potentially increasing the cost of journeys.
What is the new VAT rule for taxis?
Chancellor Rachel Reeves has moved to modernise the tax system, targeting what she sees as an unfair loophole. The reform will prevent ride-sharing apps from using an administrative scheme originally designed for tour operators to pay a lower rate of VAT. From January 2, 2026, all Private Hire Vehicle Operators (PHVOs) in London, and all PHVOs who act as the 'principal' in a booking nationally, will have to charge VAT in the same way.
This marks a significant shift. Currently, taxi and private hire firms outside London do not charge VAT on journeys, as drivers are typically treated as self-employed contractors. The new rule directly addresses a long-standing grievance within the traditional taxi industry.
Industry reaction: 'A landmark moment for fairness'
The Licensed Taxi Drivers' Association (LTDA) has welcomed the government's decision. Steve McNamara, the LTDA's General Secretary, described it as a "landmark moment for fairness and integrity in our industry."
"This change is not just about tax," McNamara stated. "It is about restoring balance to a market that has been distorted for far too long. Drivers and small businesses have been competing against global corporations that enjoy special treatment, while hardworking operators pay the full 20 per cent VAT rate. Today's announcement finally levels that playing field and ensures competition is based on service and quality, not tax avoidance."
Concerns over rising costs and rural access
However, the move has sparked warnings about increased costs for passengers. Prior to the Budget, a coalition of almost 60 taxi and private hire firms cautioned that a 20% VAT hike could price out rural communities, cutting off vital transport links.
Conservative Shadow Transport Secretary, Richard Holden MP, accused the Chancellor of preparing a "tax grab" that would hit ordinary people. He warned that the policy would "make every ride home, every school run, every late-night journey significantly more expensive for millions of people." Holden, the MP for Basildon and Billericay, has directly questioned the Department for Transport on the implications of the VAT increase.
The government's position, as outlined by Chancellor Reeves, is that the reform is essential to create a tax system "fit for the 21st century" and ensure all operators compete on equal terms. The coming months will reveal how much of the new VAT burden is passed on to the consumer and what the true impact on millions of annual journeys will be.
