From 2 January 2026, HM Treasury has barred online minicab operators in London from using the Tour Operators’ Margin Scheme (TOMS), a niche VAT regime designed for package holidays. Ministers say the move restores fair competition with black cabs and protects about £700m a year for public services.

TOMS lets qualifying travel firms pay VAT on their margin rather than the full selling price. HMRC’s own notice sets out how TOMS is intended for bundled travel services, while the Treasury’s release notes ride‑hailers were achieving an effective VAT rate of roughly 4% by treating fares as margin.

The legal change was signalled at the Autumn Budget on 26 November 2025 and now takes effect. HMRC’s Tax Information and Impact Note confirms suppliers of taxi and private‑hire journeys are excluded from TOMS unless the trip is ancillary to a wider travel package, with operators expected to use normal VAT rules from today.

Why London first? London private‑hire operators must contract with passengers as principal, a requirement confirmed by the Divisional Court in 2021. Outside the capital, the Supreme Court ruled in July 2025 that operators can still use an agency model, which usually leaves drivers (often below the £90,000 threshold) as the supplier. That split means the TOMS closure mainly bites in London.

What might this do to prices? If a £20 London ride is VAT‑inclusive, the VAT element at 20% is £3.33 using the VAT fraction of 1/6; under a typical TOMS outcome at about 4% effective, that VAT would have been around 80p. The delta-roughly £2.50 per £20 ride-must be absorbed by platforms, drivers or passed through to passengers. Major apps have warned of double‑digit increases for London if full‑fare VAT applies.

For everyday context, consider a solo driver completing 300 London trips a month at an average £20 fare. The illustrative VAT gap versus a TOMS‑style 4% outcome is about £750 per month. Operators with tight take‑rates will need to decide whether to reprice or accept thinner margins; either way, the economics of short hops in central London become more sensitive to surge and driver incentives.

Black cabs and most small operators outside London are largely untouched by today’s change, according to HM Treasury. That reflects how bookings are made: many regional trips are taken under an agency model with drivers supplying the transport and falling below the VAT threshold, while London operators acting as principal were the ones using TOMS.

There is a wider backstory. HMRC’s brief explains that after court rulings some platforms began applying TOMS to private‑hire supplies when acting as principal, prompting the government to legislate prospectively. Outside London, some large operators have since re‑written contracts to operate as agents, a model the Supreme Court confirmed remains lawful beyond the capital.

For drivers, the immediate question is VAT registration. The threshold is £90,000 in taxable turnover on a rolling 12‑month basis. Many drivers will remain outside VAT, but anyone nearing the line should keep close records and take advice. HMRC’s sector notice also clarifies how VAT applies when a business acts as principal versus agent in the taxi trade.

What to watch next: HMRC says past disputes over whether private‑hire rides ever belonged in TOMS are still with the courts, but the law from 2 January 2026 is clear-TOMS cannot be used for taxi or private‑hire journeys except when the ride is part of a broader travel package. For London riders and platforms, today formalises a VAT regime that now looks set for the long haul.