Uber rewrites driver contracts to avoid paying 20% VAT on fares

Uber has restructured its operations outside London in a bid to sidestep the imposition of 20% VAT on all fares.

The ride-hailing giant has changed its contractual arrangements with drivers outside London, so it now no longer acts as the “principal” in the transaction with the customer. Instead, Uber now claims it is operating as an agent – in the same way as most private hire firms.

The change means Uber has effectively transferred VAT liability from the company to individual drivers. Under the revised terms issued to drivers from January 2026, drivers now contract directly with passengers rather than through Uber.

Chancellor Rachel Reeves introduced new rules for VAT on private hire fees in the November autumn statement. These took effect this month. The new rules require operators to account for 20% VAT on the entire passenger fare when acting as principal. Operators acting as an agent are only required to account for VAT on the proportion of the far paid to them (the margin), which typically is between 10% and 20% of the total fare – though Uber’s revised contract reveals that the company retains the right to take commission of up to 49% on fares.

As most drivers do not earn enough money to reach the £90,000 VAT threshold, the driver’s portion of the fare is not subject to VAT. Previously operators used the Tour Operators Margin Scheme, and although the Budget ruled that this can no longer be used, operators using the Agency model can still reduce their VAT liability to the margin only.

In November, Reeves told the Commons the changes would end up “protecting around £700m of tax revenue each year”. However, Uber’s move could significantly reduce that amount.

Recent court rulings clarified that ride-hailing platforms function as suppliers rather than intermediaries. However, there could be further legal challenges to Uber on this issue, as the self-employment status of private hire drivers is complex and open to challenge.

The restructured contracts cannot be applied in London, where Transport for London licensing rules require private hire operators to contract directly with passengers. Consequently, Uber passengers in the capital will pay VAT on their fares under the new rules, creating a divergence in pricing between London and the rest of England and Wales.

Andrew Brem, Uber’s regional general manager for the UK, had earlier criticised the new rules. In November, he said: “The government’s action to change the rules will mean higher prices for passengers in London, and less work for drivers, when people are already struggling with the cost of living. The courts have twice ruled that the Tour Operators’ Margin Scheme applied to operators like Uber. This decision also establishes the absurd situation where a trip in London will be taxed at a different rate than a trip anywhere else in the UK.”