Motorists are being alerted to car coming into effect today.
From January 2, 2026, providers of private hire vehicle and taxi services will no longer be included in the Tour Operators' Margin Scheme.
This is a tax scheme designed for tour operators and holiday coach trips to significantly reduce the VAT they pay on fares. The Government says the change will benefit cabbies and small taxi companies.
Steve McNamara, General Secretary of the Licensed Taxi Drivers Association, commended Labour for its "decisive action" in support of drivers.
He further commented: "The Government's decision to apply VAT to all private hire journeys is a landmark step for fairness and integrity in our industry.
"For too long, drivers and small operators paying the full 20% VAT have had to compete with online mini cab firms benefiting from a niche tax scheme."
However, Andrew Brem, Uber's UK general manager, countered: "The courts have twice ruled that the Tour Operators' Margin Scheme applied to operators like Uber."
He added: "This decision also establishes the absurd situation where a trip in London will be taxed at a different rate than a trip anywhere else in the UK."
The Government responded: "It remains the policy view of HMRC that private hire vehicle supplies do not fall within the scope of the TOMS and VAT was due on the full fare.
"To provide certainty to the operators, the Government announced in the Autumn Budget 2025 that it will introduce legislation to put the matter beyond doubt going forward and exclude suppliers of private hire and taxi journeys from the VAT TOMS, except where these journeys are supplied in conjunction with, and are ancillary to, certain other travel services."
The Government went on to clarify: "The change will affect those businesses that buy in and resell taxi or private hire vehicle journeys as principal, or as agents acting in their own name.
"For the most part these will be taxi and private hire vehicle operators, though other businesses could be affected."
Officials emphasised: "This change does not impact journeys where private hire vehicle operators or taxi operators act as a disclosed agent, or journeys provided directly by the driver to the passenger (for example a taxi hailed in the street)."
The Government wrapped up by explaining: "There are exceptions to the exclusion from the TOMS, where the journey is supplied in conjunction with and ancillary to certain other 'principal' travel services, these are accommodation or certain other passenger transport services.
"This means that a 'traditional' tour operator who buys in mini-cab journeys to resupply as part of a travel package is not affected by these changes."
