The Taxi Tax – 20% VAT on Every PHV Journey
On 2 January 2026, eight weeks before the Iran conflict began, the government introduced full 20% VAT on all private hire fares, abolishing the Tour Operators Margin Scheme. HM Treasury expects to collect 725 million in 2026-27.
The Demand Impact
A survey by The Taxi Insurer found 70% of passengers said they would reduce or stop using PHVs altogether because of the fare increase. Fewer passengers means fewer trips and lower driver earnings.
The Government Double Windfall
The government is simultaneously collecting an estimated 2.5 billion in additional VAT from higher fuel pump prices caused by the Iran conflict. Drivers are subsidising the Treasury at both ends, on every fare and on every litre of fuel.
The Case for Reducing VAT to 5%
- Cuts typical 24 fare back to approximately 21, reversing the demand destruction
- More rides means higher driver earnings without any government cash transfer
- Cost approximately 1 billion per year, fully covered by the 2.5 billion fuel windfall already accruing
- Precedent: fuel duty was cut 5p per litre during the Ukraine energy crisis in 2022