Policy paper

VAT treatment of private hire vehicle operators

Published 29 October 2026

Who is likely to be affected 

The measure will affect businesses supplying passenger transport services by taxi or private hire vehicle (PHV) including taxi operators, taxi drivers, private hire vehicle operators (PHVOs) and private hire drivers. The measure may also affect passengers.

General description of the measure 

This measure announces a change in VAT law coming into effect in January 2028 for supplies of passenger transport services by taxi or PHV supplied through an agent, so that the services will be deemed to be made by the agent and not the driver. This means that the operator will account for VAT on the full value of the fare where they are registered for VAT. 

The deeming will only apply to larger businesses whose annual fare turnover exceeds a certain threshold, meaning smaller businesses will not be affected by the measure. The Government will consult on the level of this threshold, with the £50 million annual fare turnover the lead option.

The consultation will also support final policy design and implementation.

Policy objective 

In London PHVOs are required to act as the principal — the person making the supply of transport services to passengers. Outside of London, the PHVO is free to act as agent for the driver, with the driver accounting for VAT on the full fare if registered for VAT. The lack of consistency outside of London creates an unlevel playing field for competition, particularly amongst the larger operators. This measure will ensure the larger operators are treated equally, with VAT reflecting their role in the supply of transport services, whilst leaving smaller businesses unaffected.

Background to the measure 

In April 2024, HM Treasury, HMRC, and Department for Transport published a consultation on the VAT Treatment of Private Hire Vehicles, with a response document published at Budget 2025. 

Detailed proposal 

Operative date 

The measure will take effect from 2 January 2028. The government will consult on the level of turnover threshold and to support final policy design and implementation.

Current law

There is no current VAT law that applies specifically to PHVs. Operators and drivers charge VAT in accordance with the standard VAT rules as laid down in the VAT Act 1994.

Proposed revisions 

Section 47 of the VAT Act will be amended. New subsection 4A will provide that where private hire vehicles services are supplied through an agent acting in his own, the supply is treated as being both a supply to the agent and a supply by the agent. 

This means that for the purposes of VAT, the agent is considered to have purchased supplies from the drivers, and then subsequently to have made a supply to the passenger. Therefore the agent must charge output VAT on the deemed supply. 

New section 4B will give the Treasury powers to set the circumstances in which the deeming provision soes not apply. 

Summary of impacts 

Exchequer impact (£ million) 

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
—	95	385	395	410	425

These figures are set out in Table 6.1 of Budget 2026 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2026. 

Economic impact 

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

Impact on individuals, households and families 

This measure may impact individuals who use taxis or private hire vehicles if operators 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 it does not change any tax administration processes or obligations. 

Equalities impact 

This measure may affect individuals who use taxi and PHVs to complete a journey, if the PHVO supplying these services responds to this measure by changing their fares.

If the measure affects an individual, it will do so regardless of their protected characteristics. HMRC does not hold data that it can use to assess whether there are any disproportionate impacts to protected groups. 

However, evidence from PHV use in England indicates that people with mobility issues take a higher number of trips per year compared to people without mobility issues. Additionally, women take a higher number of trips per year compared to men.

Administrative impact on business including civil society organisations 

This measure will have a negligible administrative impact on the larger PHV businesses captured by increasing the compliance costs associated with ensuring they charge the correct amount of VAT.

One-off costs could include familiarisation with the change. Ongoing costs are expected to include administering and accounting for the correct amount of VAT on fares in scope of the measure. 

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 being required 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 

Consideration will be given to monitoring and evaluating aspects of this policy after compliance data, through ongoing existing HMRC activities, has been analysed. 

Further advice 

If you have any questions about this change, contact Peter Rowe, VAT Principles by telephone on 03000530933 or email at peter.rowe@hmrc.gov.uk.