His Majesty’s Treasury (HM Treasury) has announced that private hire vehicle operators in London will no longer be able to use the Tour Operators Margin Scheme to significantly reduce the VAT they pay on fares.
The Tour Operator’s Margin Scheme is a specialist VAT rule designed for travel and holiday businesses, allowing them to pay VAT only on the profit they make on package trips, not the full fare.
This typically reduces the effective VAT rate to 4%, with the change meaning that black cabs will no longer have to compete with online mini cab firms who are misusing this scheme to pay less VAT.
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.
HM Treasury stated that the closure could bring in £700m a year to help cut waiting lists, cut debt and borrowing, and cut the cost of living.
UK general secretary of the licensed taxi drivers association, Steve McNamara, 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.”
