Removal of the Tour Operators Margin Scheme
Recent Autumn Budget changes removed a specialised VAT scheme from January 2026. This scheme, known as the Tour Operators Margin Scheme, no longer applies to private hire vehicles. The government introduced the change following prolonged legal uncertainty. As a result, taxi and private hire journeys now sit outside TOMS completely.
Originally, the scheme supported tour operators selling travel packages. However, over time, some ride‑hailing businesses used it differently. They applied VAT only to their commission. Consequently, they avoided charging VAT on the full fare. The government viewed this as inconsistent with the scheme’s purpose.
Impact on competition within the taxi market
The change aimed to create fairness across the sector. In theory, it supported black cab drivers in London. It also protected smaller regional taxi firms. These businesses usually contract directly with passengers. Therefore, they already charged VAT differently from large platforms.
However, the outcome varies across regions. Regulation and licensing rules play a major role. As a result, VAT treatment now differs between London and other areas.
VAT treatment of fares in London
In London, most private hire fares now attract VAT. Transport for London licensing rules influence the position. Ride‑hailing companies often act as principal suppliers. Consequently, VAT applies to the full fare. Businesses paying these costs must therefore review invoices carefully.
Reclaiming VAT on fares outside London
Outside London, many platforms restructured their arrangements. Some now act as agents rather than suppliers. This change shifts VAT responsibility to drivers. Most drivers earn below the £90,000 VAT registration threshold. Therefore, VAT often does not apply to these fares. As a result, reclaiming VAT on fares becomes more limited.
This position can confuse businesses. Many expect VAT recovery. However, recovery depends entirely on evidence.
Evidence required when reclaiming VAT on fares
To reclaim VAT, businesses need a valid VAT invoice or receipt. The document must clearly show VAT separately. If VAT does not appear, HMRC will not allow recovery. However, the cost may still qualify as a business expense. Companies can often deduct it for Corporation Tax purposes instead.
Practical implications for businesses
Businesses should review transport expenses carefully. They should check suppliers’ VAT status regularly. Clear documentation supports accurate claims. Without it, HMRC may deny recovery. Therefore, understanding reclaiming VAT on fares helps reduce risk and cost.
