Passengers using Uber and other ride-hailing apps in England are facing a significant price hike from the start of the new year. A major change to VAT rules is set to make private hire journeys more expensive.
What is Changing with the Taxi VAT Rules?
From 2 January 2026, suppliers of private hire and taxi journeys will be excluded from the Tour Operators’ Margin Scheme (TOMS). Her Majesty's Revenue and Customs (HMRC) states this measure formally "excludes suppliers of private hire and taxi journeys from being ‘tour operators’ for the purposes of the Tour Operators’ Margin Scheme."
Previously, under TOMS, VAT was only applied to the profit margin of the journey. The new rule means that 20% VAT will now be due on the full fare, not just the operator's margin. This technical correction by the government will directly increase the cost passed on to consumers.
Business and Public Reaction to the 'Uber Tax'
Financial experts have been quick to analyse the practical impact. Scott Gallacher, Director at Leicester-based Rowley Turton, commented: "Although the Government presents this as a technical VAT correction, in practice it appears as an Uber tax that will drive up ride-hailing costs by 15%–20%."
Business owners who rely on these services for staff safety have expressed frustration. Kate Underwood, Founder of Kate Underwood HR and Training in Southampton, criticised the move: "If you ever needed proof that Rachel from Accounts has never tried getting a junior home safely at 11pm, this taxi tax is it."
She highlighted that for small businesses, apps like Uber offer a cash-free, traceable, and safer solution for fulfilling duty of care. Underwood warned that the rising costs, when combined with other business expenses, are creating a snowball effect, forcing employers to seek more complex, vetted local alternatives.
Who Will Be Hit Hardest by the Fare Increase?
The change is expected to disproportionately affect younger people and those in areas with poor transport links. Gallacher pointed to "intergenerational unfairness," noting that the youngest already contend with licensing backlogs, high car insurance, and a cost-of-living squeeze.
The policy also poses a particular challenge for residents in rural and poorly served urban areas, where ride-hailing apps are often the only reliable transport option available late at night or for specific journeys. Critics argue the change effectively punishes groups with the fewest alternatives.
While the government frames it as closing a loophole, the outcome from Friday morning is clear: getting a taxi in England via an app is about to become more expensive for everyone.
