Is there VAT on taxi fares? What drivers need to know

If you’ve ever wondered, “is there VAT on taxi fares?”, you’re not alone. The rules around Value Added Tax (VAT) on taxis and private hire vehicles in the UK are evolving, especially with upcoming reforms in 2026. Whether you’re a passenger or a driver, understanding these changes is essential to avoid surprises and comply with the law.

In this guide, we’ll cover everything you need to know about VAT on taxi fares, including how it works, new regulations, exemptions, and what it means for your wallet.

What is VAT on taxi fares?

VAT is a consumption tax applied to goods and services in the UK. Traditionally, not all taxi journeys were subject to VAT. Small operators outside London often did not charge VAT if their annual turnover was below the registration threshold of £90,000.

However, new regulations effective from January 2, 2026, are changing how VAT applies to taxi and private hire fares. This means that many journeys that were previously exempt may now include a 20% VAT charge.

New “taxi tax” rules from 2026

The UK government has introduced reforms affecting taxi operators under the Tour Operators Margin Scheme (TOMS). Here’s what you need to know:

• VAT on full fare: Previously, many private hire operators only charged VAT on their commission. From January 2026, VAT will generally apply to the full fare, not just a portion.
• Principal vs agent: London-based operators already act as principals and charge VAT on the full fare. Outside London, smaller operators who were not VAT-registered may now need to comply if the new rules apply.
• Impact on passengers: For a £20 taxi journey that was previously VAT-free, a 20% VAT could increase the fare to £24.
• Receipts: Operators must now display their VAT registration number and the VAT amount on all receipts.

These reforms aim to standardise VAT across the UK and reduce discrepancies between large and small operators.

London vs. other regions

VAT application on taxi fares can differ depending on where the service operates:

• London: Private hire operators are required to charge VAT on all fares because they act as principals. This is common among larger, corporate operators.
• Outside London: Independent drivers and smaller companies often fell below the £90,000 annual turnover threshold and did not charge VAT. Under the 2026 reforms, more of these operators will likely need to register for VAT and charge the standard 20%.

This means that passengers outside London may see higher fares from independent operators for the first time.

Exemptions and zero-rated fares

Not all taxi journeys are subject to the standard 20% VAT. There are exemptions and zero-rated categories:

• Larger vehicles: Vehicles designed to carry 10 or more passengers are typically zero-rated for VAT.
• Certain special services: Some specialised transport services, like medical or emergency transport, may also be exempt.

Always check your receipt to see if VAT has been applied.

How passengers can check if VAT is charged

Passengers can verify whether they are paying VAT by checking their receipt. Registered VAT operators must include:

1. VAT registration number
2. Amount of VAT applied to the fare

If your receipt shows neither, the fare may not include VAT. However, with the new rules coming into effect, most operators will need to comply.

The impact on passengers and drivers

• Passengers: Expect an increase of around 20% on fares that were previously VAT-free. A standard £20 journey may rise to £24, depending on the operator.
• Drivers: VAT registration may become mandatory for operators previously exempt. This adds administrative work, but ensures compliance with new regulations.
• Businesses: Companies that book taxis for employees must account for VAT in their expenses.

Overall, these changes aim to simplify and standardise the tax system for taxi services across the UK.

Key takeaways

1. Yes, there is VAT on taxi fares—and the rules are tightening from January 2026.
2. London vs. outside London: London operators already charge VAT; outside London, more operators will be required to do so.
3. VAT rate: The standard rate is 20%, applied to the full fare.
4. Receipts: VAT-registered operators must display their VAT number and VAT charged.
5. Exemptions: Vehicles for 10+ passengers and certain special services are zero-rated.

Frequently Asked Questions (FAQs)

Are all taxi fares in the UK subject to VAT?

Not all, but the majority will be from January 2026 due to new rules applying VAT to the full fare.

How can I tell if my taxi fare includes VAT?

Check your receipt. If the operator is VAT-registered, it must show the VAT registration number and the VAT amount.

Do larger taxis pay VAT?

Vehicles designed for 10 or more passengers are generally zero-rated for VAT.

Will my fare increase due to VAT?

Yes. A £20 journey could rise to £24 if 20% VAT is applied.

Are independent drivers outside London affected?

Under the 2026 reforms, yes, more small operators will need to register for VAT and apply it to fares.