Policy paper

VAT Tour Operators’ Margin Scheme — supplies by private hire vehicle or taxi operators

Published 26 November 2025

Purpose of this brief

This brief explains the implications for private hire vehicle operators and taxi operators and guidance on the legislation the government will introduce taking effect from 2 January 2026.

Who should read this brief

You should read this brief if you supply taxi or private hire vehicle services as principal or as agent acting in your own name.

Background

The Tour Operators’ Margin Scheme (TOMS) is a special VAT accounting scheme for tour operators.

The supply of private hire vehicle and taxi services has always been subject to VAT when supplied by a VAT registered business. For the majority of supplies, private hire vehicle operators have treated the supply of the private hire vehicle service as made by the driver to the passenger, with the private hire vehicle operators providing agency services to the driver of booking the ride at the request of the passenger. For VAT purposes, private hire vehicle operators only accounted for the VAT on their agency service and for account work, where they acted as principal, on the full fare.

Generally, the supply of a taxi (also known as Hackney Carriage) journey is by the individual drivers plying for hire, but in some instances, for example account work, an operator may act as principal in the supply of a taxi ride. This brief therefore also applies to such taxi operators, and the collective term ‘operator’ is used in this brief to cover both taxi and private hire vehicle operators. Find out more about how VAT applies to taxis and private hire cars (VAT Notice 700/25).

In a number of non-VAT related judgments, the courts found that under the respective private hire vehicle operator legislation, private hire vehicle operators operating:

• in London are required to act as principal to the supply of the journey to the passenger
• outside of London could continue to operate as agent or principal for non-account journeys

HMRC was not involved in those cases. However, these rulings have resulted in a change of VAT treatment for some operators who have been required to change their business model to comply with the rulings, given that an operator who acts as principal must account for VAT on the full fare.

Following the court rulings, a number of private hire vehicle operators that act as principals decided that, for VAT accounting purposes, they should use the TOMS to account for VAT only on their margin after paying the driver and not the full fare. HMRC’s view remains that the TOMS was designed and intended to provide simplification for the supplies of travel services across the EU (for example, package holidays) and never designed or intended to be used for domestic supplies by private hire vehicle operators or taxi operators.

This difference of view regarding the scope of the TOMS led to VAT litigation. In December 2023, the First-tier Tribunal decided that private hire vehicle supplies made by Bolt Services Ltd were supplies that could fall within the scope of the TOMS. The Upper Tribunal later upheld this decision. HMRC has appealed the decision to the Court of Appeal. It remains the policy view of HMRC that private hire vehicle supplies do not fall within the scope of the TOMS and VAT was due on the full fare.

Change in legislation from 2 January 2026

To provide certainty to the operators the government announced in the Autumn Budget 2025 that it will introduce legislation to put the matter beyond doubt going forward and exclude suppliers of private hire and taxi journeys from the VAT TOMS, except where these journeys are supplied in conjunction with, and are ancillary to, certain other travel services.

What the change in legislation means

For the TOMS to apply to a supply it must be a supply of goods or services by a tour operator (read section 53 of the Value Added Tax Act 1994 and the Value Added Tax (Tour Operators) Order 1987). Section 53 of VATA94 is amended to exclude suppliers of taxi and private hire vehicle journeys from the definition of tour operator, for the purposes of the TOMS.

The change will affect those businesses that buy in and resell taxi or private hire vehicle journeys as principal, or as agents acting in their own name. For the most part these will be taxi and private hire vehicle operators, though other businesses could be affected.

This change does not impact journeys where private hire vehicle operators or taxi operators act as a disclosed agent, or journeys provided directly by the driver to the passenger (for example a taxi hailed in the street).

There are exceptions to the exclusion from the TOMS, where the journey is supplied in conjunction with and ancillary to certain other ‘principal’ travel services, these are accommodation or certain other passenger transport services. This means that a ‘traditional’ tour operator who buys in mini-cab journeys to resupply as part of a travel package is not affected by these changes.

Meaning of taxi and private hire vehicle

‘Taxi and private hire vehicle’ have their ordinary English meaning and HMRC interpret this as including similar services of transporting a person from A to B at the direction of the passenger. For example, a chauffeur service. The mode of transport is not confined to road vehicles but can also be provided by, for example, a boat, aircraft, or any other vehicle designed to transport passengers.

Examples of exceptions

The legislation is not intended to change the rules as they apply to ‘traditional’ tour operators that may supply a taxi ride to get a customer to or from a hotel, an airport or port. That is, where the taxi ride is supplied in conjunction with and is ancillary to the principal supply of the accommodation or flight, then the exception to the exclusion can be applied. In this example the TOMS can apply. The principal supply of the accommodation or transport service can be bought-in or provided in-house.

The person must supply the journey ‘in conjunction with’ the principal supply and it must be ancillary to that supply. That is, it should be purchased as part of the same package. Suppliers do not need to prove the intention of the customer — the circumstances of the transaction should be enough.

The exception will apply if the package includes other supplies, for example, a theatre trip that involves a taxi journey. In this scenario, for the TOMS to apply the package must include accommodation or transport

Changing from using the TOMS to using normal VAT rules

Affected businesses that are currently using the TOMS for private hire vehicle or taxi journeys must use the normal VAT accounting rules from 2 January 2026. Read about how VAT works. Read the section about current and past VAT periods for more information on the treatment of VAT.

For the purposes of the TOMS end of financial year ‘annual adjustment’ calculation, businesses can use the 1 January 2026 as that date even if it means extending the year by one day. This means, if your financial year ends on 31 December 2025, for TOMS calculation purposes you must include any TOMS supplies made on 1 January 2026.

Examples of how this might affect you

If you:

• are a private hire car or taxi driver — you will only be affected by this change if you have used the Tour Operators’ Margin Scheme to account for VAT
• supply mini-cab rides as a disclosed agent of the driver — this change does not affect you it only affects those who act as an undisclosed agent or principal
• are a hotelier and you buy in and resupply taxi journeys as the request of a guest — if the journey is not part of a package booked at the same time as the room, then the TOMS does not apply
• are a ‘traditional’ tour operator, who buys in mini-cab or taxi journeys to resupply as part of a travel package — you should not be affected by these changes

Current and past VAT periods

VAT implications of the Upper Tribunal judgment in Bolt

Subject to HMRC’s appeal being decided by the Court of Appeal in due course, the Upper Tribunal decision currently means businesses that have operated as principal may meet the conditions for the TOMS to apply to their services.

This only applies in respect to those journeys where the operator has acted as principal, or as an undisclosed agent. If the operator acted as a disclosed agent, it was never affected by the TOMS or the VAT judgment in Bolt.

If you meet the conditions

If a business meets the conditions of the TOMS, then it must use that scheme to account for VAT. However, HMRC recognise that for many businesses reworking past VAT returns would involve a great deal of effort and be time consuming. Also, business records will not have been kept with the TOMS in mind.

Therefore, HMRC does not require any operator that has submitted VAT returns on the basis of normal accounting to rework any VAT periods.

Businesses that have already used the TOMS and submitted VAT returns on that basis should be aware that in HMRC’s view VAT was due on the basis of the full fare, not on the basis of their margin after paying the driver. We may therefore take action to protect the revenue pending final determination of the litigation.

If you wish to apply the TOMS

Any operator that considers it makes supplies that meet all the conditions of the scheme following the judgment in Bolt may rework its past VAT periods under the ‘rules of the scheme’ as set out in Notice 709/5 and submit an Error Correction Notification to HMRC. Any claim is subject to the 4-year time limit.

In order for an Error Correction Notification to be considered, you will need to demonstrate that all the conditions of the scheme are met within the terms of the Bolt judgment and follow the rules of the scheme, including the calculation method and end-of-year calculation.

Error Correction Notices

HMRC will review all Error Correction Notifications. However, HMRC has been granted permission to appeal to the Court of Appeal. For this reason, it would be prejudicial to HMRC’s responsibility to protect the revenue to pay claims while the litigation continues. Under these circumstances, HMRC will reject such claims, and no payments will be made. You may appeal a rejected claim, and an appeal is required to protect your claim while litigation continues. HMRC will review the position once the litigation in the Bolt case finally concludes.

If you choose to submit an Error Correction Notification in relation to this issue, please complete this Notification of errors in VAT Returns form.

You’ll need to email: ccg.phvotomsclaims@hmrc.gov.uk with your completed Notification of errors in VAT Returns form and write ‘PHVO TOMS Claim RCB 08/25’ in the subject line of your email.

Tour Operators’ Margin Scheme

Tour Operators’ Margin Scheme (VAT Notice 709/5) will be updated in due course.

More information

You can find out more in the Budget 2025 tax related documents.