The Government’s recent Budget and HMRC consultation on VAT and private hire services has sent a clear message to the largest ride-hailing platforms — but a far less clear one to the rest of the industry.

By removing access to the Tour Operators’ Margin Scheme (TOMS) for ride-hailers such as Uber and Bolt, HMRC has confirmed what many suspected: that it now sees these businesses as principals in the supply of transport rather than mere intermediaries. At the same time, the consultation briefly acknowledges that VAT applies to private hire fares in London following the Supreme Court decision in Uber v Aslam, the subsequent Uber v App Drivers & Couriers Union case, and the later Sefton ruling.

What is striking, however, is not what the consultation says — but what it fails to address.

A policy built around Uber

The consultation reads as though it has been written almost exclusively with multinational app-based operators in mind. Uber and Bolt are name-checked, their operating models clearly understood, and their legal position effectively accepted as the benchmark.

That approach ignores a fundamental reality of the UK private hire market: the vast majority of London’s 1,300+ licensed operators do not operate like Uber.

Outside London in particular, most operators act as agents. They introduce passengers to self-employed drivers, take bookings, and in many cases never touch the fare at all. The contract for transport is between the passenger and the driver. The operator’s income is a booking fee or weekly rent, not the fare itself.

Yet HMRC’s consultation makes little attempt to grapple with this distinction. By focusing on the high-profile court rulings involving Uber, it risks imposing a tax framework designed for platform giants onto small and medium-sized operators who operate under very different commercial and legal structures.

The London problem – and the Sefton ripple effect

The situation is further complicated by the position in London.

Following Uber v ADU, Transport for London made clear that operators licensed in the capital are responsible for the provision of the journey. The later Sefton case reinforced the view that where an operator accepts a booking, it is the principal in the supply of transport.

HMRC has taken this as confirmation that VAT is due on private hire fares in London.

What has not been properly addressed is how far that interpretation extends beyond London, or how it applies in cases where:

• the driver sets or collects the fare,
• payment is made in cash,
• the operator never receives the fare,
• or the operator’s terms explicitly define them as an agent.

For many operators, particularly outside TfL licensing, the suggestion that they are now liable for VAT on the full fare is not just unclear — it is commercially existential.

The unanswered question: cash fares

Perhaps the most glaring omission in HMRC’s response is the treatment of cash.

Thousands of private hire drivers even in London, still accept cash payments. In these cases, the operator may never see the money, never process it, and never have visibility of the final fare beyond what is recorded for licensing or dispatch purposes.

If VAT is to be charged on the full fare:

• Who accounts for it?
• How is it calculated?
• How is it enforced?
• And how does an operator remit VAT on money it never receives?

The consultation offers no practical answer. This is not a technical detail — it goes to the heart of whether the proposed approach is workable at all.

Without clarity, operators face the risk of being held liable for tax they cannot collect, on income they never received, in respect of transactions they did not control.

A two-tier industry in the making

The combined effect of these changes risks creating a two-tier private hire market.

Large platforms with:

• centralised payment systems,
• in-app fare control,
• sophisticated tax teams,
• and the ability to restructure quickly,

can adapt.

Smaller operators — often family businesses serving local communities — cannot.

For many of them, absorbing 20% VAT on the fare is not commercially viable. Passing it on to passengers risks pricing them out of the market. And restructuring overnight is neither simple nor cheap.

The danger is that well-intentioned tax reform ends up accelerating consolidation in the sector, pushing independent operators out while strengthening the market position of the very platforms that the policy was supposedly designed to regulate.

What can operators do?

While clarity from HMRC is still lacking, there are steps operators can at least consider.

1. Reviewing licensing arrangements

Some operators are already exploring licensing outside Transport for London, where the regulatory framework does not automatically treat the operator as the principal.

While this is not a universal solution, it may provide greater flexibility in how services are structured and how VAT liability is assessed. Any such move must, of course, comply fully with local authority licensing rules.

2. Re-establishing the agency model

Uber’s own response to adverse rulings is instructive.

Following the Supreme Court decision, Uber restructured its model to emphasise its role as a booking agent rather than a transport provider — with drivers contracting directly with passengers and Uber charging a service fee.

Smaller operators may need to consider similar steps:

• clearer contractual terms,
• transparent agency relationships,
• explicit separation between fare and commission,
• and robust documentation showing the operator does not supply the journey.

While this does not guarantee immunity from HMRC challenge, it strengthens the argument that VAT should apply only to the operator’s commission, not the full fare.

3. Reviewing payment flows

Operators may also need to reconsider how payments are taken.

If the operator processes card payments, HMRC is more likely to argue that it controls the supply. Where payment flows directly to the driver, the argument for agency is stronger — though still not settled.

Clear audit trails, driver agreements, and passenger terms will become increasingly important.

The need for clarity — and consultation that listens

The private hire sector is not asking for special treatment. It is asking for clarity, consistency, and recognition of how the industry actually operates.

HMRC’s current approach appears to assume that what works for Uber works for everyone. It does not.

Without clearer guidance, the industry faces years of uncertainty, inconsistent enforcement, and potentially damaging retrospective claims. For smaller operators in particular, this is not an abstract policy debate — it is an existential one.

If the government wants a fair, compliant, and competitive private hire market, it must engage properly with the full breadth of the industry, not just its biggest players.

Until then, operators are left navigating a VAT landscape that feels increasingly shaped by case law, not common sense.