VAT on taxi fares shifts to agents from January 2028

From 2 January 2028, passenger transport services supplied by taxi or private hire vehicle through an agent will be treated as supplied by the agent rather than the driver.GOV Where the agent is registered for VAT, the agent will have to charge VAT on the full value of the fare.GOV The deeming will apply only to larger businesses whose annual fare turnover exceeds a certain thresholdGOV; smaller businesses will not be affectedGOV.

The treatment reverses the current agency position set out in VAT Notice 700/25. Under that notice, an operator that acts as agent for self-employed drivers accounts for VAT only on its own agency services and administration charges, while the transport itself is supplied by the drivers — so VAT is due on the fares only if the driver is VAT-registered. An operator whose drivers are all employees, or which acts as principal for account work, already accounts for VAT on the full supply under the existing rules.

The scope of the new measure turns on a turnover threshold the publication does not fixGOV: the government will consult on its levelGOV, with £50 million of annual fare turnover the lead optionGOV. Until that consultation concludes, operators near that scale cannot confirm whether they are in or out; the publication confirms only that smaller businesses will not be affected.

For agents above the threshold that are VAT-registered, the consequence is direct: VAT on the full fare, rather than on the agency fee alone.GOV Because the supply is then treated as the agent's, the VAT on the journey will turn on whether the agent is registered, rather than on the driver's registration status. New subsection 4A applies where private hire vehicle services are supplied through an agent acting in its own name: the service counts both as a supply to the agent and as a supply by the agent, so the agent is treated as purchasing from the driver and supplying the passenger, charging output VAT on the deemed supply. New section 4B gives the Treasury power to set circumstances in which the deeming does not apply. A separate change in legislation on and after 2 January 2026 for taxi and private hire operators, covering the VAT treatment on and before 1 January 2026 under the Tour Operators' Margin Scheme, is explained in Revenue and Customs Brief 8 (2025) and is distinct from this January 2028 agency measure.

The policy objective is to put larger operators on an equal footing: in London operators must act as principal, while outside London they may act as agent for the driver, an inconsistency the measure removes for larger businesses. The change amends section 47 of the VAT Act 1994, inserting new subsections 4A and 4B.