London Black cabs to get tax boost
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 reduce the VAT they pay on fares significantly.
This means that black cabs will no longer have to compete with online mini cab firms, which are misusing this scheme to pay less VAT, the government said in a statement on Friday (2 January).
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, the measure will prevent a small number of big companies from accessing the Tour Operator’s Margin Scheme, as they have been doing.
By supporting fairer competition, the government said it 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.
“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,” said Chancellor Rachel Reeves.
