Policy paper

Private Hire Vehicle Operators and the change in legislation for the Tour Operators’ Margin Scheme

Published 26 November 2025

Who is likely to be affected

This measure will primarily affect Private Hire Vehicle Operators (‘PHVOs’), commonly referred to as ‘minicabs’, as well as some taxi operators. Passengers may also be affected.

General description of the measure

The measure introduces a change in VAT law for supplies of private hire and taxi journeys. The measure excludes suppliers of these services from the Tour Operators’ Margin Scheme (‘TOMS’) unless supplied by them in conjunction with other travel services.

Policy objective

HMRC has challenged the use of the TOMS for Private Hire Vehicle (‘PHV’) journeys in the courts. It is HMRC’s policy that the TOMS was not designed for nor intended to be used by this sector. Following the judgment of the Upper Tribunal that PHV services can be within the TOMS, the government is now legislating to put the matter beyond doubt going forward. This measure will provide the industry with certainty and clarity on the VAT treatment of passenger transport. Supplies of taxi or PHV journeys made directly by a driver to a passenger are not affected by this measure.

Background to the measure

This measure was announced at Budget 2025.

Some PHVOs acting as principal to the supply of passenger transport have adopted the TOMS which HMRC has challenged in the courts. In March 2025, the UT ruled that PHVOs can be eligible to use the TOMS (HMRC v. Bolt [2025] UKUT00100). HMRC has since been granted permission to appeal to the Court of Appeal. This measure provides the sector with clarity and certainty going forward and ring-fences the litigation to past VAT periods.

Detailed proposal

Operative date

The measure will take effect from 2 January 2026.

Current law

The TOMS is a scheme founded in EU law intended to simplify the VAT treatment of cross-border travel such as packaged holidays. To ease the transition out of the European Union (EU), the UK has retained the scheme (in modified form) following its withdrawal from the European Union. The EU legislation is set out in the Principal VAT Directive Articles 306 to 310 ‘Special Scheme for Travel Agents’.

The main UK VAT legislation on the TOMS is section 53 VATA94 and the Value Added Tax (Tour Operators) Order 1987 (SI/1987/1806) (‘the TOMS Order’).

Proposed revisions

Section 53 of VATA94 is amended to exclude from the definition of Tour Operator, and consequently the eligibility to use the TOMS, the supply of taxi and PHV journeys except where these are provided with other ‘principal’ travel services.

Summary of impacts

Exchequer impact (£ million)

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
+190	+725	+665	+655	+650	+675

These figures are set out in table 4.1 of Budget 2025 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2025. 

Macroeconomic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure may impact on individuals who use PHVOs if PHVOs respond by changing their fares.

This measure is not expected to impact on family formation, stability or breakdown. 

This measure is expected overall to have no impact on individuals’ experience of dealing with HMRC as the change does not change any process or tax obligation for them.

Equalities impacts

An individual may be affected by this measure regardless of their protected characteristics. If a protected group is overrepresented in this population, then it will be disproportionately impacted.

In 2024 the average number of trips taken by females (9.5) by taxi or PHV was estimated to be slightly higher than for males (8.0). People aged 17-29 were estimated to have the highest average number of trips, and this was the most pronounced for females aged 17-20 (17.1). The average number of trips taken by taxi or PHV was also estimated to be higher for people with a disability (12.2 trips per person per year) compared with those without (8.5 trips per person per year). Those with mobility issues use PHVs or taxis for 3% of their total journeys, compared to just 1% for those without mobility issues. Therefore, individuals with a disability and females aged 17-29 may be overrepresented in the population affected by this measure, if PHVOs respond by changing their fares.

HMRC does not currently hold data on the other protected characteristics of individuals impacted by this measure and so cannot make an assessment of the impacts on those with shared protected characteristics.

Administrative impact on business including civil society organisations

This measure will have a negligible administrative impact on a small number of businesses by increasing the compliance costs associated with ensuring they charge the correct amount of VAT. One-off costs could include familiarisation with the change. It is not anticipated there will be any ongoing costs. 

This measure is not expected to disproportionately impact civil society organisations. 

This measure is expected overall to have no impact on businesses’ experience of dealing with HMRC as the change does not change any tax admin obligations. 

Some PHV drivers may decide to register for VAT voluntarily as a result of this measure, but the measure is unlikely to result in more businesses requiring to register.

Operational impact (£ million) (HMRC or other)

HMRC will not incur any costs implementing this change.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored and assessed alongside other measures in the government’s package for VAT tax changes.

Further advice

If you have any questions about this change, contact Peter Bennet, VAT Principles, Indirect Tax on telephone 03000 585559 or email peter.bennet@hmrc.gov.uk.