VAT private hire operators UK 2026: the TOMS closure explained
VAT private hire operators UK 2026 face the biggest financial change the industry has seen in years. Since 2 January 2026, the Tour Operators’ Margin Scheme (TOMS) no longer applies to private hire vehicle (PHV) operators. If you were using TOMS, you were paying VAT only on your margin, which is the difference between what you charged customers and what you paid drivers. That’s gone. You now owe 20% VAT on the full fare, every time.
Most operators we’ve spoken to understood TOMS was under threat. Fewer had a concrete plan for what to do when it actually closed. This guide covers exactly that: what changed, who’s affected, and the specific steps you need to take right now.
Who is affected by the TOMS closure
Not every operator used TOMS. If you were already charging VAT on full fares before January 2026, the rules haven’t changed for you. But if you were registered under TOMS, or if you weren’t VAT-registered because your turnover sat comfortably below the threshold, you need to pay close attention.
The VAT registration threshold in the UK is £90,000 annual turnover. Under the old TOMS calculation, many mid-size operators sat below this because VAT was calculated on margin, not gross fares. Now that full fare VAT applies, operators who were comfortably under that threshold may find themselves over it when they recalculate. Some operators crossing £90,000 in gross fares have crossed into mandatory VAT registration territory without realising it yet.
Here’s a rough example. Say your fleet takes £150,000 in fares in a year and your margin after driver payments was £40,000. Under TOMS, you were calculating VAT on £40,000. Now you calculate it on £150,000. The VAT liability is nearly four times higher. That’s not a rounding error, that’s an existential budget problem if you haven’t adjusted fares.
Step 1: check whether you need to register for VAT
If your gross fare income (not margin) exceeds £90,000 in any rolling 12-month period, you must register for VAT. This applies from the point you cross the threshold, not from the start of the financial year.
Most operators who were using TOMS should already be checking this. If you were turning over £90,000 in gross fares before January, you almost certainly need to register now. Voluntary registration is also worth considering if you’re close to the threshold, because it lets you reclaim VAT on business costs including software, vehicles, and fuel.
Register online at gov.uk. HMRC usually processes new registrations within 30 working days. You’ll receive a VAT number, and from that point you must charge VAT on fares and file quarterly returns.
Step 2: recalculate your fares
VAT private hire operators UK 2026 can’t simply absorb 20% on top of current fares without recalculating their pricing structure. You have two options.
Option one is to increase fares to account for VAT. If a journey currently costs £20, you need to charge £24 (£20 plus 20% VAT) to keep the same net revenue. Most operators will need to go this route. The alternative, absorbing the cost, wipes out margin on most jobs.
Option two is to treat your current fare as VAT-inclusive. So a £20 fare becomes £16.67 net plus £3.33 VAT. This means your net revenue drops. For low-margin operators, that’s simply not viable.
Our view: increase fares. Passengers and account customers have seen price rises across every transport mode. A clear, factual explanation of why fares have changed is better than silently eating the cost and struggling by the end of the quarter. See our guide on taxi dispatch software pricing for more on how to structure your pricing changes.
Step 3: update your invoicing immediately
VAT-registered operators must issue VAT invoices for every taxable supply. A valid VAT invoice needs to include your VAT number, the VAT rate applied, the net amount, the VAT amount, and the gross total. Handwritten receipts and generic PDF templates that don’t show VAT breakdowns won’t cut it.
For account customers especially, this matters. Corporate clients who are VAT-registered themselves will want to reclaim the input VAT on the fares they pay you. If your invoices don’t show the VAT correctly, they can’t do that, and they’ll complain, loudly.
Operators running corporate accounts need to audit every billing template in use. Account billing through your dispatch system should be generating compliant VAT invoices automatically. If it isn’t, fix that before your next billing run. The corporate accounts features in CAB-X generate VAT-compliant invoices automatically, with the correct rate applied per job.
Step 4: notify account customers before they get the first new invoice
Don’t let a corporate client receive a VAT invoice without warning. Send a short, factual communication now explaining that TOMS closed on 2 January 2026, that VAT now applies to the full fare, and what that means for their invoices going forward.
Keep it brief. One page. Explain the regulation change, confirm your VAT number, and give them a contact if they have questions. Most business customers will understand, this is a government-mandated change, not a discretionary price hike.
What you want to avoid is an accounts payable team at a large corporate client querying a suddenly higher invoice three months from now, at which point you’re explaining TOMS retroactively while chasing payment.
Step 5: update your dispatch and billing software
Manual workarounds are a short-term patch. If your dispatch system isn’t calculating VAT correctly on every fare, you’ll have errors in your quarterly VAT return and gaps in your invoicing. HMRC doesn’t accept “my software didn’t support it” as a reason for incorrect returns.
At minimum, your dispatch software needs to:
- Apply the correct VAT rate (20% standard rate) to taxable fares automatically
- Generate VAT-compliant invoices with all required fields
- Separate net fare, VAT amount, and gross total in reporting
- Track VAT collected per period for quarterly returns
- Handle account billing with VAT applied correctly at the job level
CAB-X handles all of this natively. The automated dispatch system applies VAT settings at the fleet level, so every booking, whether app, web, or phone, generates the correct fare and the correct invoice without manual intervention. If you’re currently using software that requires manual VAT adjustments, that’s a compliance risk and a time drain.
VAT private hire operators UK 2026: the compliance checklist
Here’s a practical summary you can work through this week.
- Calculate your gross fare income for the past 12 months and check against the £90,000 threshold
- Register for VAT if you’re over the threshold or approaching it
- Decide whether to increase fares by 20% or treat current fares as VAT-inclusive, and recalculate accordingly
- Update all fare tables in your dispatch system
- Audit invoicing templates, account billing, and receipt formats for VAT compliance
- Send a notification to all account customers with your VAT number and the new invoicing format
- Set up quarterly VAT return tracking in your accounting software
- Confirm your dispatch software applies VAT automatically and generates compliant invoices
None of these steps are optional if you’re above the threshold. HMRC has been clear that TOMS no longer applies. Continuing to account for VAT on margin only after 2 January 2026 would be incorrect, and if you’re audited, the liability plus penalties could be severe.
What about zero-rated or exempt fares
Some operators ask whether any fares remain exempt from VAT. The short answer is: very few, in practice.
Certain passenger transport on larger vehicles (10 or more seats) can be zero-rated under UK VAT rules. Standard private hire in cars and minibuses with fewer than 10 passenger seats is taxable at the standard 20% rate. If you run a mixed fleet, you’ll need to account for VAT differently per vehicle type, which is another reason automated per-booking VAT calculation in your dispatch system is necessary rather than optional.
How CAB-X helps operators adapt to VAT private hire operators UK 2026 requirements
We built CAB-X for fleets of all sizes, from one-vehicle operators to 500-plus vehicle networks. The VAT changes in 2026 make software that handles billing correctly more important than it’s ever been.
The CAB-X dispatch system includes VAT-compliant invoicing built in. Account jobs bill correctly with VAT separated in every invoice. Financial reports break out net revenue and VAT collected per period, so filing a VAT return takes minutes rather than an afternoon with a spreadsheet. The web booker and passenger app both display VAT-inclusive fares where required.
We also take compliance seriously beyond VAT. If you’re reviewing your systems, our GDPR compliance guide for taxi operators covers the data protection obligations that run alongside your tax compliance requirements.
Getting the admin right now means less risk and less scrambling at quarter end. If you want to see how CAB-X handles VAT invoicing for your fleet, get in touch and we’ll walk you through it.
Frequently Asked Questions
Do private hire operators have to charge VAT on fares from January 2026?
Yes. Since 2 January 2026, the Tour Operators’ Margin Scheme no longer applies to PHV operators. Operators above the £90,000 VAT registration threshold must charge 20% VAT on the full fare, not just on their margin.
What is the VAT registration threshold for taxi and private hire operators in 2026?
The threshold is £90,000 in taxable turnover over any rolling 12-month period. With VAT now calculated on gross fares rather than margin, many operators who were previously under the threshold will now exceed it and must register.
What was TOMS and why does it matter that it closed?
TOMS (Tour Operators’ Margin Scheme) allowed operators to pay VAT only on their profit margin rather than the full fare. Its closure means operators must now account for VAT on 100% of the fare, which significantly increases their VAT liability on each booking.
Should private hire operators increase fares to cover the new VAT?
Most operators will need to increase fares by 20% to maintain the same net revenue per job. Absorbing the VAT cost without a fare increase removes most or all profit margin on standard bookings and isn’t viable for the majority of fleets.
What information must appear on a VAT invoice for private hire jobs?
A valid VAT invoice must include your VAT registration number, the date of supply, a description of the service, the net fare, the VAT rate applied, the VAT amount, and the gross total. Account customers need this to reclaim input VAT on their own returns.
