HMRC has introduced three significant new law changes that affect taxi and private hire vehicle drivers in the UK. Two apply directly to individual self-employed drivers — Making Tax Digital and the tax check for licence renewals. A third affects private hire operators and platforms, with potential knock-on effects for drivers. Here’s a clear explanation of each one and what you need to do.
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Making Tax Digital for Income Tax
Making Tax Digital (MTD) for Income Tax is the most significant change for self-employed taxi and PHV drivers. From April 2026, eligible drivers are legally required to keep digital records of their income and expenses and submit quarterly updates to HMRC using approved software. The annual Self Assessment tax return is not going away, but it becomes a final summary of the quarterly updates you’ve already submitted throughout the year.
This is no longer optional. HMRC has confirmed that failure to keep digital records properly or missing submission deadlines can result in penalties of up to £3,000 per quarterly period.
Who does MTD apply to?
MTD for Income Tax applies to self-employed sole traders who are registered for Self Assessment and whose qualifying income exceeds the relevant threshold. For most taxi and PHV drivers, qualifying income broadly means your gross income from self-employment. Though the exact definition is more specific and worth checking with an accountant if you’re unsure.
The rollout is happening in stages based on income:
- If your qualifying income was over £50,000 in the 2024 to 2025 tax year, MTD applies to you from 6 April 2026.
- If your qualifying income is over £30,000 in the 2025 to 2026 tax year, MTD applies to you from 6 April 2027.
- If your qualifying income is over £20,000 in the 2026 to 2027 tax year, MTD applies to you from 6 April 2028.
HMRC should write to you if they determine MTD applies based on your previous tax return. However, it is your responsibility to check — not receiving a letter doesn’t mean you’re exempt. You can use the GOV.UK MTD checking tool to confirm whether and when it applies to you.
What do I need to do for MTD?
You need to sign up for MTD for Income Tax and start using HMRC-approved software to record your income and expenses. The software submits your quarterly updates to HMRC on your behalf.
The quarterly submission deadlines are:
- Quarter ending 30 June → complete your records by 10 July
- Quarter ending 30 September → complete your records by 10 October
- Quarter ending 31 December → complete your records by 10 January
- Quarter ending 31 March → complete your records by 10 April
These are firm deadlines. Leaving records to pile up and trying to sort everything at once near the deadline is a risk. The same habit that works for annual Self Assessment won’t work here.
HMRC provides guidance on choosing the right MTD software on GOV.UK. If you already use an accountant, speak to them as soon as possible if you haven’t already. Many are setting up clients on MTD software now.
Are there any exemptions?
Yes. HMRC does provide exemptions in some circumstances — for example, if you are digitally excluded and unable to use the required software. Exemptions are not automatic in most cases and need to be applied for. You can find out if you can get an exemption from MTD on GOV.UK.
The tax check for licence renewals
This change has been in place since April 2022 in England and Wales, and October 2023 in Scotland and Northern Ireland — so it may already be familiar. But it catches some drivers out at renewal time, so it’s worth understanding clearly.
When you renew your taxi or PHV driver licence, you must first complete a digital tax check through GOV.UK. The check confirms that you are registered for tax and understand your tax obligations. Once complete, you’re given a 9-character tax check code, which you then provide to your local licensing authority as part of your renewal application. Without a valid code, your licensing authority cannot process your application.
The tax check must be completed by you personally — you cannot ask an accountant or agent to do it on your behalf. It takes around 15 minutes and is done entirely online.
Your tax check code is valid for 120 days. If your licence application isn’t processed within that window, you’ll need to complete a new check. You can complete the tax check for taxi and PHV licences on GOV.UK.
This applies when you’re renewing an existing licence, applying for the same type of licence with a different licensing authority, or reapplying for a licence that lapsed less than a year ago. If you’re applying for a new licence for the first time, a different process applies — you’ll need to follow the confirm your tax responsibilities guidance instead.
For more on the licence renewal process, take a look at our guide to PHV licence renewal.
The TOMS VAT change — what it means for operators and drivers
This change is more complex and affects a different group — primarily private hire vehicle operators rather than individual drivers. But it’s worth understanding since it has affected fares in the sector.
From 2 January 2026, private hire vehicle operators can no longer use the Tour Operators’ Margin Scheme (TOMS) for standard passenger journeys. TOMS was a VAT scheme originally designed for packaged holidays and travel. Some PHV operators — including large platforms — had been using it to reduce their VAT liability on passenger transport. Following a legal challenge and a court ruling in favour of operators, the government stepped in and legislated to close the scheme for this use.
The practical effect is that standard VAT at 20% now applies to eligible PHV operator fares. This affects operators who are VAT-registered and were previously using TOMS. Individual self-employed taxi and PHV drivers who supply journeys directly to passengers are not affected by this change.
If you drive for a platform or operate a PHV business rather than driving independently, it’s worth taking advice from an accountant to understand whether and how this affects your specific situation.
What does this mean for your taxi insurance?
These tax changes don’t directly affect your taxi insurance policy. But they do reinforce something that’s always been important — keeping accurate records of your income, expenses, mileage, and working hours. Good record-keeping supports your tax compliance under MTD and also makes things simpler if you ever need to make a claim or discuss your cover.
If your income changes significantly as a result of any of these rules — for example, if you reduce your hours to stay below an MTD threshold or change the way you operate — it’s worth letting your insurer know, since your cover should reflect how you’re actually using your vehicle.
Get a taxi insurance quote from insurd today and make sure your cover is in order alongside your tax obligations.
A note on getting tax advice
This blog is intended as a plain English overview of the HMRC changes and what they mean in practice. It’s not tax advice. If you’re unsure whether MTD applies to you, how to calculate your qualifying income, or how the TOMS change affects your business, speak to a qualified accountant or tax adviser. Getting this right is worth the cost of proper professional advice.
In summary
Three major HMRC changes are affecting the taxi and PHV sector. Making Tax Digital is now mandatory for drivers earning above the income thresholds, requiring digital record-keeping and quarterly submissions. The tax check is required every time you renew your licence and must be completed personally through GOV.UK. The TOMS VAT change affects PHV operators rather than individual drivers but has had an impact on how fares are structured across the sector.
If you haven’t already checked whether MTD applies to you, do it now using the GOV.UK checking tool — the deadlines are already in force for higher earners and are coming for everyone else.
