Taxi tax: VAT, income tax and HMRC rules for taxi and private hire drivers (2026)

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The "taxi tax" is a change to how VAT applies to private hire operators, not a new tax on drivers. From 2 January 2026, operators that sell journeys as principal can no longer use the Tour Operators' Margin Scheme. VAT is now worked out on the full fare rather than the operator's margin. If you're a self-employed driver with turnover under the VAT threshold, you still don't charge VAT. What you do owe is income tax and National Insurance on your profits, reported through Self Assessment. The apps you drive for now send your earnings to HMRC every January.

This guide covers what changed, who it applies to, how to report your earnings and what you can claim as expenses. Every figure comes from GOV.UK and is linked in the references at the end. Rates and thresholds move each tax year, so check the GOV.UK page before you rely on a number. This is general guidance, not tax advice. If your situation is complicated, speak to an accountant.

What is the taxi tax?

"Taxi tax" is the name the trade press gave to a VAT change the government confirmed at the Autumn Budget on 26 November 2025. HMRC's own notice is Revenue and Customs Brief 8 (2025).

Here's what it does. Some private hire operators had been using the Tour Operators' Margin Scheme (TOMS). Under it, a business pays VAT only on its margin after paying the driver, not on the whole fare. The government has excluded taxi and private hire journeys from that scheme. HMRC says affected businesses "must use the normal VAT accounting rules from 2 January 2026". In plain terms, a VAT-registered operator that sells the journey as principal now accounts for VAT on the full fare.

Two things the brief says it does not touch:

  • journeys where the operator acts as a disclosed agent, so it takes the booking on your behalf and charges you a commission
  • journeys provided directly by the driver to the passenger.

So the change lands on operators, mainly app-based and larger minicab firms that contract with the passenger as principal. Whether it changes your fares or your share of them depends on how your operator responds, and that is a question for them, not HMRC.

Is there VAT on taxi fares?

Only if the business supplying the journey is VAT registered. You must register for VAT once your VAT-taxable turnover goes over £90,000 in a 12-month period. Most self-employed drivers, private hire and hackney alike, are well below that, so they don't charge VAT and don't add it to fares.

Where VAT does appear:

  • App and operator bookings. If the operator is VAT registered and sells the journey as principal, VAT is on the fare and the operator accounts for it. That is where the 2026 change bites.
  • Drivers above the threshold. If your own turnover passes £90,000, you register, charge VAT on your fares and file VAT returns. Few single-vehicle drivers get there, but a driver running long hours on airport and contract work can.
  • Hackney carriages. Fares are set by your licensing authority. The government said in its consultation response that it saw no evidence of TOMS being used in the taxi sector. The January change is a private hire matter. The VAT threshold applies to you in the same way as anyone else.

If you're not sure whether you're close to the threshold, add up 12 months of fares, not profit. Turnover is the test.

Do Uber drivers pay tax?

Yes. Driving for Uber, Bolt, FREENOW or a local operator as a self-employed driver is trading, and the profit is taxable. The platform doesn't take tax off for you. Here's how it works.

The £1,000 trading allowance

Everyone gets a tax-free trading allowance of £1,000 a year on income from self-employment. If your gross driving income (fares before expenses) is £1,000 or less in the tax year, you don't need to tell HMRC. Almost any driver who works regularly passes that in the first few weeks.

Registering for Self Assessment

Once your gross trading income is over £1,000, you register for Self Assessment. GOV.UK gives the deadline as 5 October in the tax year after the one you started trading in. So a driver who started in the 2026 to 2027 tax year registers by 5 October 2027. If you already file a return for another reason, you add your driving income to it.

Deadlines and paying the bill

The Self Assessment deadlines are the same every year. Online returns and payment are due by 11:59pm on 31 January after the tax year ends. Paper returns are due by 31 October. For the 2025 to 2026 tax year, that means filing and paying by 31 January 2027. Put money aside each week. A first tax bill arriving in January with nothing set aside is the most common way drivers get into trouble.

National Insurance

Self-employed drivers also pay National Insurance through Self Assessment. For the 2026 to 2027 tax year, Class 4 is 6% on profits between £12,570 and £50,270 and 2% above that. Class 2 is treated as paid if your profits are £7,105 or more, which protects your State Pension record without a separate bill. Below £7,105 you can pay voluntary Class 2 at £3.65 a week to keep your record going.

Second job?

If you drive alongside employed work, your driving profit is taxed on top of your salary at whatever band it falls into. Your employer's PAYE doesn't know about it, so you still register and file. The £1,000 allowance applies to the driving income in the same way.

HMRC already sees your platform earnings

Since 1 January 2024, apps and booking platforms have had to collect information about the people who make money through them. They report it to HMRC by 31 January each year. For a driver that means your name, address, date of birth and National Insurance number, plus what you were paid through the platform by quarter. The first reports, covering 2024, went in by 31 January 2025.

GOV.UK is clear that "a platform reporting your details to HMRC does not automatically mean you owe tax". What it does mean is that HMRC can compare the platform's figure with your return. The platform has to give you a copy of what it reported, so use it to check your own records. Your return should still be built from your own records, because the platform figure is after its fees and commission and before your other expenses.

What can taxi and private hire drivers claim as expenses?

You pay tax on profit, not fares. Profit is fares minus allowable business costs, and for a driver the vehicle is most of it. GOV.UK's list of allowable travel costs for the self-employed includes:

  • vehicle insurance
  • fuel
  • repairs and servicing
  • vehicle tax licence fees
  • parking
  • hire charges
  • breakdown cover.

Beyond the vehicle, the business share of your phone bill counts. GOV.UK's example is a £200 bill with £70 of business calls, so you claim £70. Platform commission and operator fees are a cost of earning the fares. Your private hire or taxi driver licence and vehicle licence fees are costs of being allowed to trade. Keep every receipt.

What you can't claim: driving for personal use, fines and penalty charges, and travel between home and work. If you use the car privately as well, claim only the business share.

The flat rate per mile instead of actual costs

Instead of adding up every vehicle cost, sole traders can use HMRC's flat rate per mile. For the 2026 to 2027 tax year it's 55p a mile for the first 10,000 business miles and 25p a mile after that. It was 45p before 6 April 2026. The rate stands in for buying and running the vehicle, so you don't claim fuel, insurance, repairs or servicing on top. Parking and other travel costs can still go on.

Two limits. You can't switch to the flat rate for a vehicle you've already claimed capital allowances on. And GOV.UK says cars designed for commercial use, including black cabs and hackney carriages, aren't eligible, so hackney drivers claim actual costs. For a high-mileage private hire driver the actual-cost method is often higher anyway. Work it out both ways in the first year.

Your insurance is a business cost too

The taxi insurance you need to carry passengers for payment is an allowable expense in full. The policy exists for the work. Private hire drivers need private hire insurance and hackney carriage drivers need public hire insurance. The two aren't interchangeable, and a personal car policy covers neither. Our guide to how much taxi insurance costs explains what sets the price. Whatever you pay, keep the policy schedule with your records for the year.

Taxi and private hire tax FAQs

Do I need to register for VAT as a taxi driver?

Only when your VAT-taxable turnover goes over £90,000 in any 12-month period. Below that, registration is voluntary. It is rarely worth it for a driver, because you can't reclaim much and you'd have to add VAT to fares or absorb it.

Do I pay tax on Uber earnings if driving is my second job?

Yes. Driving income over £1,000 a year is taxable whether or not you have a salary. You register for Self Assessment and declare the driving profit alongside your PAYE income.

Does the taxi tax mean I have to charge passengers VAT?

Not unless you are VAT registered yourself. The January 2026 change moved VAT-registered operators off the margin scheme. HMRC's brief says it does not affect journeys provided directly by the driver to the passenger.

Is taxi insurance tax deductible?

Vehicle insurance is on GOV.UK's list of allowable travel costs for the self-employed. If the policy covers private use as well, claim the business share.

This article is general guidance based on GOV.UK pages as published on 20 October 2026. It isn't tax advice. Check the GOV.UK page for the current figures and speak to an accountant about your own position.

References

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