Taxi Fares To Increase Due on Private Hire Taxis To VAT Ruling by Court

6th May 2025

The increased VAT on taxis in the UK is tied to a legal ruling that now requires private hire vehicle journeys to be subject to a 20% VAT charge.

Previously, many private hire operators were exempt because their drivers were classified as self-employed contractors. However, a recent High Court decision determined that taxi companies—not individual drivers—are responsible for contracts with passengers, making them liable for VAT.

This change has sparked concerns among business groups, who argue that it could lead to higher fares, fewer drivers, and a negative impact on high streets. Some reports suggest that 25,000 drivers may leave the industry due to the increased costs. The government is currently consulting on the implications of this ruling.

The increased VAT on taxi fares in the UK could lead to several significant changes:

Higher fares - Taxi companies may raise prices to cover the additional VAT, making rides more expensive for passengers.

Reduced demand - Higher costs could discourage people from using taxis, leading to fewer bookings and lower earnings for drivers.

Financial strain on taxi firms – If VAT is backdated, some companies may struggle to pay large tax bills, potentially forcing them out of business.

Impact on vulnerable groups – People who rely on taxis for essential travel, such as healthcare or work, may find it harder to afford rides.

Fewer drivers – Some private hire drivers may leave the industry due to lower earnings and increased costs.

Many taxi operators are urging the government to reconsider the VAT policy, arguing that it could harm both businesses and passengers.

The increased VAT on taxis in the UK is tied to a legal ruling that now requires private hire vehicle journeys to be subject to a 20% VAT charge. Previously, many private hire operators were exempt because their drivers were classified as self-employed contractors2. However, a recent High Court decision determined that taxi companies—not individual drivers—are responsible for contracts with passengers, making them liable for VAT.

This change has sparked concerns among business groups, who argue that it could lead to higher fares, fewer drivers, and a negative impact on high streets. Some reports suggest that 25,000 drivers may leave the industry due to the increased costs. The government is currently consulting on the implications of this ruling1.

If you're a taxi driver or frequently use private hire services, this could mean higher prices for rides. What do you think about this change?

What are the potential impacts on taxi fares?
The increased VAT on taxi fares in the UK could lead to several significant changes:

Higher fares – Taxi companies may raise prices to cover the additional VAT, making rides more expensive for passengers.

Reduced demand – Higher costs could discourage people from using taxis, leading to fewer bookings and lower earnings for drivers.

Financial strain on taxi firms – If VAT is backdated, some companies may struggle to pay large tax bills, potentially forcing them out of business.

Impact on vulnerable groups – People who rely on taxis for essential travel, such as healthcare or work, may find it harder to afford rides.

Fewer drivers – Some private hire drivers may leave the industry due to lower earnings and increased costs.

Many taxi operators are urging the government to reconsider the VAT policy, arguing that it could harm both businesses and passengers.

What was the legal issue on vat for taxi drivers
The legal issue surrounding VAT for taxi drivers in the UK stems from a High Court ruling that determined private hire operators—not individual drivers—are responsible for contracts with passengers. This means that taxi firms must charge 20% VAT on fares, even if their drivers are self-employed.

Historically, private hire operators were exempt from VAT because their drivers were classified as independent contractors. However, the court ruling clarified that companies like Uber and other private hire firms are legally responsible for the service provided, making them liable for VAT. This decision has led to concerns about higher fares, reduced demand, and financial strain on taxi businesses.