Uber, Bolt and Freenow will no longer be able to use the tour operators margin scheme (TOMS) to significantly reduce the VAT they pay on taxi fares, estimated to be 4% compared to standard 20% VAT rate.  

The new rules came into effect on 2 January and only affect private hire vehicle operators (PHVOs) offering taxi rides in London. It followed an announcement at the Budget last November to close a long disputed VAT issue with the app providers.

HMRC has been in the tax tribunals and higher courts on various occasions as a result of Uber and Bolt’s interpretation of the tax rules, leading to the decision to change the rules to prevent them taking advantage of the tax break.

TOMS is a tax scheme designed for tour operators and holiday coach trips, allowing them to charge VAT only on the profits from a package trip, not the full fare, typically reducing their effective VAT rate to 4%.