• Cabbies and small taxi companies to benefit as online minicab firms stopped from using niche scheme to avoid paying tax.
• Reform announced at Budget ensures everyday cabbies can compete fairly.
• Closure to bring in £700 million a year to help cut waiting lists, cut debt and borrowing, and cut the cost of living.

As announced at the Budget by the Chancellor, private hire vehicle operators in London will no longer be able to use the Tour Operators Margin Scheme – a niche tax scheme designed for tour operators and holiday coach trips – to significantly reduce the VAT they pay on fares.

This means that black cabs will no longer have to compete with online mini cab firms who are misusing this scheme to pay less VAT.

Chancellor of the Exchequer, Rachel Reeves, said:

We’re putting the brakes on the illegitimate use of a niche tax scheme to protect everyday cabbies. We’ll use the £700m a year this raises to deliver the country’s priorities – cutting the cost of living, cutting waiting lists and cutting debt and borrowing.

Steve McNamara, General Secretary of the Licensed Taxi Drivers Association, said:

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.

We welcome this move and commend the government for taking decisive action.

The Tour Operator’s Margin Scheme is a specialist VAT rule designed for genuine travel and holiday businesses, allowing them to pay VAT only on the profit they make on package trips, not the full fare, typically reducing the effective VAT rate to 4%.

First announced by the Chancellor at Budget 2025, today’s measure will prevent the small number of big companies accessing the Tour Operator’s Margin Scheme, as they have been doing.

By supporting fairer competition, the government is protecting around £700 million in revenue, helping deliver the public’s priorities – cutting waiting lists, cutting debt and borrowing, and cutting the cost of living.

Smaller operators outside London, where passengers book directly with drivers, and all black cabs will not be affected by this reform to the Tour Operator’s Margin Scheme.