VAT & the Private Hire Sector: not an easy target for the Chancellor
Jonathan Main · Posted on: November 12th 2025 · read
In the last few weeks there has been a great deal of press speculation on potential tax changes in the November Budget. Surprisingly, the notion of applying VAT to taxi fares has ended up in the mix.
Why is this a surprise?
Taxi fares are subject to VAT and have been since the introduction of VAT on 1 April 1973.
So, is the press commentary wrong?
The press has been too simplistic in its analysis of the issue.
The right questions to ask are:
- Who is liable to pay the VAT?
- How much VAT is due to HMRC?
By answering these questions, it becomes apparent that there are far easier targets for HM Treasury (“HMT”) to raise tax revenues.
Who is liable to pay the VAT?
HMRC published VAT guidance is contained in VAT Notice 700/25. The relevant extracts of the guidance are in Sections 3.1 and 3.2.
“3. Businesses that engage drivers
3.1 The types of business this covers
This includes all businesses, whether they’re a sole proprietorship, partnership or limited company, which either:
- employ staff to drive taxis or private hire-cars
- take on self-employed drivers to work under a contract for services
3.2 Accounting for VAT
If you run a business of this kind, then unless you’re acting as an agent for any of your drivers for some, or all, of the work they do, you’re a principal in making the supply of transport to the customer.”
In summary, unless the private hire operator (“PHO”) is an agent for the driver, it is liable for VAT on the fare. In the view of HMT and HMRC, PHOs should determine their relationship with drivers and passengers based on a combination of factors, including the contractual position, the regulation of their industry, and if necessary economic reality.
The well-established industry standard is for PHOs to act as agents for all cash business and principals for account work. Although the driver will be liable for VAT on cash work, they will almost certainly trade under the VAT threshold of £90,000 income per year.
The most compelling evidence of the relationship between PHO, driver, and passenger can be found in two landmark judgments concerning licensing of the industry. The first was a judgment of the High Court in 2021 and the second, a Supreme Court judgment from July this year. Taken together, the judgments require PHOs in London to act as principal in all cases, whereas PHOs in the rest of the UK remain able to act as agents, if that suits their business model.
The first issue for HMT to overcome is inconsistent licensing regulation across the UK. This is the subject of ongoing consultation between Government and the industry, which is separate to any consideration of the VAT position.
How much VAT is due to HMRC?
Bolt Services UK Ltd (“Bolt”) is involved in litigation with HMRC over the correct VAT treatment of income received for its ride hailing services. The latest judgment in favour of Bolt was issued by the Upper Tribunal (“UT”) in March 2025, Bolt Services UK Ltd v Revenue and Customs Commissioners [2025] UKUT 100 (TCC). HMRC have appealed and the hearing has been listed in the Court of Appeal for mid-2026.
Subject to HMRC overturning the decision of the UT, Bolt is required to pay VAT on the profit it earns after paying its drivers, rather than the full fare paid by the passenger, a considerable VAT saving. Bolt is using the Tour Operators Margin Scheme (“TOMS”) to achieve this outcome. The profit earned by Bolt would reasonably equate to the charges otherwise made to drivers for access to passenger bookings.
Unless HMRC succeeds in overturning the Bolt decision, it is questionable whether larger PHOs with the resource to restructure their businesses will pay any more VAT even if they operate as principal for all account and cash business.
"Without this, HMT could not be certain how much revenue would be raised and would be open to potential future legal challenges by the sector. There are far easier targets for the Chancellor that will raise more revenue and have less potential to be challenged in future court processes."
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