It wouldn’t be tax if it weren’t complicated, and in the case of VAT for taxi firms, it’s veered well into “you couldn’t make it up” territory.
In the latest twist from HMRC (via the Autumn Budget 2025), the rules around VAT for taxi firms have taken a turn that’s baffled operators, confused passengers, and left accountants muttering into their tea.
Let’s break down what’s happened, what it means for you, and what you might want to consider doing about it.
VAT for taxi firms: What’s changed?
The government has confirmed that taxi firms are excluded from the Tour Operators Margin Scheme (TOMS), unless they fit very specific – and frankly rare – criteria.
The result? Some taxi firms now have to charge VAT on the full fare, and others don’t.
Yes, you read that right. Two completely different VAT treatments for the same taxi ride, depending on how your business is structured.
Why are there two systems?
This all comes down to who’s actually making the contract with the customer and where in the country you are.
- In London, operators contract directly with the passenger, so the operator is the principal. This means they must charge VAT on the full fare.
- Outside of London, many operators contract as agents, with the driver acting as the principal. Most drivers aren’t VAT registered, so no VAT is charged on the fare.
So, we end up with the slightly absurd situation where London fares include VAT and most non-London fares don’t.
And the result of this is pretty simple: London fares just got more expensive. It’s hard not to feel like this is a postcode penalty.
| If you’re a business owner looking for the bigger picture of what the Autumn Budget means for you, check out our overview here: Budget 2025: What Business Owners Need to Know. |
Why does this matter?
VAT for taxi firms might sound like a dry technical issue, but in practice, it can have a real financial impact on your business and your customers.
If your firm now needs to charge VAT, you either increase fares (not ideal in a competitive market) or take a hit to your margins. Neither is a particularly cheery option.
On the other hand, if you’re outside of London and not VAT registered, you might have a price advantage – at least for now. But if you’re growing and getting close to the VAT registration threshold, now’s the time to think about your business structure and pricing strategy.
What can you do?
The first thing is to work out how these changes affect you.
- Are you acting as principal or agent?
- Are you close to the VAT threshold?
- Are you paying more to your accountant for help navigating all this? (We hope not, if you’re with us!)
And if this VAT chaos is stressing you out, we get it. We’re here to help you make sense of the madness and help your business stay on the right side of HMRC.
| Confused about VAT and how it affects your business? We can help you navigate the rules and keep your costs under control. Get in touch with us today. |
