Uber VAT Changes London 2026: Impact on PCO Driver Earnings

The private hire industry just experienced its biggest tax change in years. If you're a London PCO driver, here's exactly how Uber's VAT restructure affects your earnings – and what you can do about it.

Understanding the New Uber VAT Rules in London

In November 2025, Chancellor Rachel Reeves announced sweeping changes to how VAT applies to private hire operators across the UK. From January 2026, operators must charge 20% VAT on full passenger fares – ending the Tour Operators Margin Scheme (TOMS) that previously allowed platforms like Uber to pay VAT only on their commission.

The Treasury projected this would raise £700m annually. But Uber's response has created a two-tier system that treats London drivers completely differently from the rest of the UK.

How Uber Avoided VAT Outside London (But Not in the Capital)

The Agency Model Restructure

Across England and Wales outside London, Uber has rewritten driver contracts to operate as an "agent" rather than a "supplier" of transport services. This contractual change means:

• Drivers contract directly with passengers

• VAT liability transfers from Uber to individual drivers

• Since most drivers earn under the £90,000 VAT registration threshold, most fares avoid the 20% tax

• Uber charges VAT only on its commission (typically 20-25% of the fare)

This restructure protects Uber from hundreds of millions in VAT liability across most of the UK.

Why London PCO Drivers Face Different VAT Rules

Transport for London (TfL) licensing regulations prevent the agency model in the capital.

TfL requires private hire operators to maintain direct contractual relationships with passengers – intermediary structures aren't permitted under London's private hire regulations. This means:

London: Uber remains the principal supplier and full fares remain subject to 20% VAT

Outside London: Agency model applies where most fares avoid VAT

If you're a PCO driver operating in London, you're facing different economic conditions than private hire drivers anywhere else in the UK.

Impact on PCO Driver Earnings in London

Three Ways the Uber VAT Changes Will Affect You

The VAT increase on London private hire fares will impact your earnings through:

1. Higher Passenger Fares

• Uber must pass on the 20% VAT cost somewhere in the pricing structure

• Increased fares may reduce demand, particularly for short trips and off-peak hours

• Price-sensitive passengers may switch to public transport or reduce private hire usage

2. Adjusted Driver Commission Structures

• Uber may absorb part of the VAT cost by reducing driver commission rates

• Bonus and incentive structures could be recalibrated

• Per-trip earnings may decrease even if gross fares remain stable

3. Market Dynamics Shift

• All London operators (Uber, Bolt, FREE NOW) face the same VAT requirements

• Competitive pricing pressure may intensify

• Surge pricing patterns could change as platforms adjust their algorithms

Andrew Brem, Uber's UK Regional General Manager, warned at the Budget announcement that the changes would mean "higher prices for passengers in London, and less work for drivers."

What the VAT Threshold Means for PCO Drivers

Under UK tax law, individuals only register for VAT once annual turnover exceeds £90,000. For context:

• £90,000 in gross bookings = approximately £1,730 per week

• Most PCO drivers operate below this threshold

• Outside London, this means VAT doesn't apply to most driver-passenger transactions

• In London, the operator (Uber) charges VAT regardless of individual driver earnings

This is why Uber's agency model works everywhere except London – and why London drivers are uniquely exposed to the full VAT impact.

How to Protect Your PCO Driver Income in 2026

1. Optimise Your Vehicle Running Costs

With tighter margins, vehicle efficiency is critical:

• Hybrid vehicles like the Toyota Prius significantly reduce fuel costs per mile

• Electric PCO vehicles (Toyota bZ4X, VW ID.7 and Mercedes EQB) eliminate fuel costs entirely

• All-inclusive PCO car hire packages provide predictable weekly costs without surprise maintenance bills

• Lower running costs protect your net earnings when fare structures change

2. Diversify Across Multiple Platforms

Don't rely on a single app:

• Work across Uber, Bolt, and FREE NOW to maximize trip opportunities

• Different platforms may adjust to VAT changes at different rates

• Platform diversity protects you from algorithm changes on any single app

• Multi-apping helps you maintain consistent weekly earnings during adjustment periods

3. Focus on High-Value Work

Strategic trip selection becomes more important:

• Airport runs offer higher fares less affected by VAT-driven price sensitivity

• Longer journeys typically have better earnings-to-effort ratios

• Business travel and account work provide more stable demand

• Pre-booked jobs reduce reliance on street hailing and surge pricing

4. Choose Flexible PCO Car Hire Solutions

Industry uncertainty requires agility:

• Flexible weekly hire lets you adapt quickly without long-term commitments

• Avoid locking into multi-year vehicle finance during market transitions

• Access to newer, more efficient vehicles keeps you competitive

• No credit check options reduce barriers during economic uncertainty

Rachel Reeves Taxi Tax: The Wider Industry Context

Why the Government Introduced the VAT Changes

The Treasury's stated objectives for ending TOMS for private hire included:

• Closing tax loopholes that allowed app-based platforms to pay less VAT than traditional taxi services

• Standardizing VAT treatment across the taxi and private hire industry

• Responding to court rulings that clarified ride-hailing platforms operate as suppliers, not just intermediaries

• Raising revenue to fund government priorities

HM Treasury stated the changes would "benefit everyday cabbies with a fairer tax system" – though the reality for London PCO drivers is more complex.

What This Means for Private Hire Competition in London

All major operators face the same VAT requirements in London:

• Uber, Bolt, FREE NOW must all charge 20% VAT on full London fares

• Smaller local minicab firms already paying VAT see no disadvantage

• Black cab services (already VAT-registered) face no additional burden

• The "level playing field" only applies within London – the rest of the UK operates differently

TfL VAT Rules: Why London Is Different

Transport for London Licensing Requirements

TfL's regulatory framework for private hire operators includes:

• Mandatory direct contracts between operators and passengers

• Prohibition of pure intermediary or agency structures

• Strict operator licensing conditions that define service provision

• Requirements that the licensed operator remains responsible for the service

These regulations exist to:

• Maintain passenger safety standards

• Ensure clear accountability for private hire services

• Provide regulatory oversight of London's private hire market

• Distinguish private hire from taxi services

This regulatory framework is why Uber cannot use the agency model in London – and why London PCO drivers face different VAT economics than the rest of the UK.

PCO Driver VAT: Common Questions Answered

Do I need to register for VAT as a PCO driver?

Only if your gross bookings exceed £90,000 annually. For most London PCO drivers, you're operating under Uber's VAT registration, not your own. The platform charges VAT on behalf of the transaction.

Will Uber fares increase in London because of VAT?

Likely yes. Uber must either increase passenger fares, reduce driver commissions, or absorb the cost themselves. Given public statements, fare increases appear most probable.

Are other platforms affected the same way?

Yes. Bolt, FREE NOW, and all London private hire operators must comply with the same VAT rules. This isn't Uber-specific – it's industry-wide in London.

How much will my earnings decrease?

This depends on how each platform structures its response. If fares increase and demand drops 5-10%, and commission structures adjust slightly, drivers could see 5-15% earnings volatility during the adjustment period. Those with efficient vehicles and diversified platform work will fare best.

What Splend Is Doing to Support London PCO Drivers

At Splend, we understand that regulatory changes create uncertainty – but they also create opportunities for drivers who prepare strategically.

Our Response to the Uber VAT Changes:

Vehicle Efficiency Focus

• Expanded our electric PCO vehicle options to reduce running costs

• All-inclusive packages that lock in predictable weekly expenses

• No surprise maintenance costs when margins are tight

Maximum Flexibility

• Weekly hire options that let you adapt without long-term commitments

• Ability to upgrade or change vehicles as market conditions evolve

• No early exit penalties if you need to adjust your approach

London Market Expertise

• Direct relationships with TfL and ongoing regulatory monitoring

• Real-time updates as platforms announce their specific VAT strategies

• Support team that understands London-specific PCO challenges

Platform-Neutral Support

• Vehicles approved for Uber, Bolt, and FREE NOW

• Multi-apping strategy support to maximize earnings across platforms

• No exclusivity requirements – work where the demand is

The Bottom Line for London PCO Drivers

Yes, the VAT changes create challenges. London drivers face different economics than the rest of the UK, and there will be an adjustment period as the market finds its new equilibrium.

But the fundamentals haven't changed. London remains the UK's largest private hire market with consistent demand, highest earning potential, and most robust infrastructure. Passengers still need transport, airports still need drivers, and professional PCO drivers who manage costs strategically will continue to earn strong incomes.

The drivers who succeed in 2026 will be those who:

• Control their vehicle costs through efficient, reliable cars

• Maintain flexibility rather than locking into rigid commitments

• Diversify their work across multiple platforms

• Stay informed about regulatory and platform changes

The market is evolving – make sure your PCO car hire solution evolves with it.