Chancellor Rachel Reeves has confirmed a major change that could impact millions of vehicle journeys a year.
The Chancellor said she would be modernising the tax system to ensure it is fit for the 21st century.
One of the key measures was to prevent ride-sharing taxi apps from exploiting an administrative scheme, intended for tour operators, to pay a lower rate of VAT than others.
Budget documents outline: “This will ensure that, from January 2, 2026, all PHVOs in London, and all PHVOs who operate as ‘principal’ nationally, will pay VAT in the same way.”
Around £700million is being used to exclude private hire vehicle operators from TOMS from January 2026.
The changes mean that private hire vehicle operators, including popular services like Uber and Bolt, will be required to pay VAT.
Steve McNamara, General Secretary of the Licensed Taxi Drivers’ Association (LTDA), said: “Today’s decision by the Government to apply VAT to all private hire journeys is a landmark moment for fairness and integrity in our industry.
“This change is not just about tax. 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.”
Taxi and private hire firms outside of London do not charge VAT on journeys because drivers are considered to be self-employed contractors.
Prior to the Budget, a coalition of almost 60 taxi and private hire firms previously warned the Chancellor that a 20 per cent hike in the rate of VAT would cut off rural Britons.
Taxi drivers were issued a major update in the Budget
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GETTYOperators warned that a blanked VAT rate of at least 20 per cent on all private hire fares would increase costs for millions of passengers and hammer the sector.
An open letter to the Chancellor warned that working families and residents outside of major cities would be hit hard, particularly in Wales and the south of England.
The Treasury ran a consultation on VAT hikes in August 2024, although it hasn’t yet published a response on the results, leaving 265,000 licensed private hire drivers in limbo.
Shadow Transport Secretary Richard Holden previously warned that Chancellor Reeves could be preparing to launch a “tax grab” against taxis and private hire vehicles.
Shadow Transport Secretary Richard Holden previously warned that Chancellor Rachel Reeves could launch a ‘tax grab’
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GB NEWSHe warned that the Chancellor would “make every ride home, every school run, every late-night journey significantly more expensive for millions of people”.
Mr Holden, who represents Basildon and Billericay, questioned the Department for Transport whether it would be introducing a VAT hike for private hire vehicles and taxis.