HMRC Policy paper: Taxi journeys excluded from TOMS

Affected Parties: The proposed measure primarily impacts Private Hire Vehicle Operators (PHVOs) and some taxi operators, with potential effects on passengers. It aims to clarify the VAT treatment of private hire and taxi journeys under the Tour Operators’ Margin Scheme (TOMS).
Legislative Changes: The measure, effective from January 2, 2026, will exclude PHVOs from using TOMS for their services unless provided alongside other travel services. This change follows court challenges and aims to ensure that the VAT law is appropriately applied to the passenger transport sector.
Economic Impact and Compliance: The measure is expected to generate significant revenue for the Exchequer, estimated at £190 million in 2025-2026, with further increases in subsequent years. While it may lead to slight fare adjustments for passengers, the overall administrative impact on businesses is deemed negligible, with no significant changes in tax obligations for individuals.

Legislation Change (Effective 2 January 2026): Private hire vehicle and taxi journeys will be excluded from the VAT Tour Operators’ Margin Scheme (TOMS), except when supplied as ancillary to other principal travel services (e.g., accommodation or flights). Operators must revert to normal VAT rules on the full fare.
Impact on Businesses: Applies to operators acting as principal or undisclosed agent; disclosed agents and direct driver-to-passenger supplies remain unaffected. Traditional tour operators bundling taxi rides within travel packages are also exempt from this exclusion.
Past and Current VAT Periods: HMRC will not require reworking past VAT returns filed under normal rules, but businesses using TOMS may face HMRC action pending litigation (Bolt case). Claims for past periods can be submitted via Error Correction Notification but will not be paid until litigation concludes.