If you’re a Private Hire Vehicle (PHV) driver, you’ve probably heard people talking about the new “Taxi Tax” and 20% VAT on fares. There’s a lot of noise, half-explanations and panic in WhatsApp groups – but what actually changes for you as a driver?
Let’s break it down in plain English, focusing on how this hits PHV drivers rather than accountants or politicians.
1. What is the “Taxi Tax” in simple terms?
The “Taxi Tax” isn’t a brand-new tax just for taxis – it’s a change to how VAT is charged on private hire and app-booked journeys.
Very simply:
• Before: The platform/operator (Uber, Bolt, local PHV firm etc.) often only paid VAT on its commission/booking fee, not on the whole fare.
• After: The operator is treated as selling the whole journey to the passenger, so VAT is due on the full fare (unless an exemption applies).
On paper, the VAT is charged to the operator, not directly to you as a driver.
In real life… that cost has to land somewhere:
• Higher prices for passengers
• Lower earnings for drivers
• Or lower margins for the platform – usually it’s a mix of all three.
2. How this could affect your day-to-day earnings
Higher fares – good or bad for you?
To cover the extra VAT, operators are likely to raise passenger prices.
Possible upside:
• If the app simply increases prices and keeps your percentage share the same, the amount you earn per trip could go up slightly.
• On paper you might see bigger gross fares on your trip receipts.
BUT there are two big downsides:
a. Fewer jobs
Higher fares can put some riders off:
– Short trips may no longer feel “worth it” compared to walking, bus or train.
– Late-night and off-peak demand might drop as people try to save money.
That means you could end up:
– Waiting longer between pings
– Doing more dead miles
– Earning less per hour, even if individual fares look higher.
b. Apps might adjust your share
Platforms can quietly:
– Reduce your driver share percentage
– Add new “service charges” or “platform fees” deducted from you
– Offer fewer incentives/bonuses
So, while the headline fare goes up, your cut might not keep pace.
3. Impact on different types of PHV drivers
Not all PHV drivers will feel this in exactly the same way.
a. Full-time app drivers (Uber, Bolt, etc.)
Most affected because:
• Almost all work is handled and paid through the platform.
• The platform is treated as the main supplier, so VAT is baked into almost every job.
• Your entire income is exposed to whatever pricing + commission strategy the app chooses.
Likely effects:
• More price experimentation (surge, minimum fares, new fees).
• Possible pressure on driver earnings to keep rides “competitive”.
• You’ll need to track your true hourly earnings more carefully than ever.
b. Part-time/casual PHV drivers
If you drive:
• Only at weekends or evenings,
• Or mainly use PHV work as a top-up income,
You might see:
• Busier hours still holding up (Friday/Saturday nights, events, airports).
• But quieter slots (weekday afternoons) are becoming less worthwhile as demand softens.
You may decide to focus only on premium times to protect your hourly rate.
c. Owner-drivers with local office work
If you:
• Work for a local base,
• Do a lot of account work, school contracts, or regular bookings,
You may be affected through:
• Your base/operator renegotiating rates on contracts (schools, councils, companies) because their own VAT position has changed.
• Possible attempts to push some of the cost onto drivers (e.g. lower driver rates, higher circuit fees, new “admin” charges).
Your biggest risk isn’t necessarily losing individual passengers, but your base losing contracts or cutting driver rates to stay competitive.
4. Will you personally need to register for VAT?
For many PHV drivers, this is the big worry.
A few key points (general, not personal tax advice):
• VAT is charged on the operator’s sale to the passenger.
• Many drivers are self-employed but below the VAT threshold based on their own turnover.
• In those cases, you personally may still not need to register for VAT – the VAT is being handled at the operator level.
However:
• If your personal self-employed turnover (from PHV and any other business work) goes above the VAT registration threshold, you may have to register and do VAT returns yourself.
• Some drivers with higher income (e.g. executive/private jobs on top of app work) may be caught out by this.
This is one area where it’s worth spending a little money on a proper accountant who understands PHV work. They can:
• Tell you if/when you personally need to register.
• Help you reclaim allowable input VAT (e.g. on some costs) if you do register.
• Stop you from accidentally underpaying and facing penalties later.
5. Your costs: fuel, finance, and everything else
The Taxi Tax doesn’t just sit in a separate box called “VAT” – it interacts with your whole cost structure.
Things to watch:
a. Fuel / Electricity
– If fewer trips are completed per hour, your dead mileage cost per job rises.
– You’ll want to be ruthless about where/when you work so fuel per paid mile stays under control.
b. Vehicle finance & insurance
– If your monthly car + insurance + maintenance costs are fixed, but your completed trips fall, the cost per job rises.
You might need to reconsider:
– Whether your current vehicle is financially viable.
– If a cheaper/older vehicle (still PHV-compliant) might make more sense.
c. Platform fees & extras
– Apps may introduce new “extras” to cover their own VAT and margins.
– Always read emails and in-app messages about changes to:
– Service fees
– Commission levels
– Incentive/bonus structures
Small rule changes can quietly remove £50–£150 a week from your net income.
Another thing to consider for EV and plug-in hybrid vehicle owners is the per-mile charge, which will begin in 2028. EV vehicles will need to pay 3p per mile, which is around £300 if you drive 10,000 miles a year and 1.5p per mile for Plugin Hybrid vehicles, so an additional £150 if you drive 10,000 miles per year. This seems unfair for all the drivers who made the move to electric vehicles due to TfL rule changes.
Sadly, these new changes just add to the rising cost for Private Hire drivers across London and the country as a whole. It’s starting to feel like making a living as a PHV driver is going to become nearly impossible.
