Uber Sidesteps Chancellor’s Taxi Tax Through Contract Restructuring

Uber has engineered a significant restructuring of its contractual arrangements to circumvent Chancellor Rachel Reeves’s newly implemented VAT obligations on minicab services. The company has rewritten driver contracts outside London in a move designed to substantially reduce its tax liability as the government’s tax reform takes effect on 1 January 2026.

The Chancellor’s November Budget introduced changes to VAT rules requiring minicab companies to pay the full 20 percent tax on entire passenger fares, rather than only on commission received by the operator. This measure was projected to generate more than £700 million annually for the Treasury whilst improving competition within the sector. The modification came into force on New Year’s Day.

Under Uber’s new “agency” model, the company repositions itself as a booking agent rather than a service provider. This structural change means drivers, rather than Uber itself, contract directly with passengers and assume responsibility for VAT obligations. The strategy effectively shifts tax liability to individual drivers, the majority of whom remain below the £90,000 annual booking threshold that triggers VAT registration requirements.

The financial implications prove substantial. Uber’s business operations outside the capital represent approximately half of its £5.2 billion annual UK minicab revenue. Had the company remained subject to the previous framework, it would have faced annual VAT payments exceeding £600 million, according to filings with US stock market regulators.

London presents a different situation due to Transport for London restrictions on the agency model. Consequently, Uber fares in the capital now fall subject to VAT on the entire transaction amount, contradicting the company’s cost containment objectives. The company has warned that fares may increase as a direct result of this requirement.

Uber’s contractual revisions also permit commission rates ranging between 3 percent and 49 percent of fares, representing a substantial expansion from the company’s previous 25 percent rate. The company maintains that commissions are not increasing and that the changes align its operations with competitors operating outside London.

A Treasury spokesperson characterised the measure as ensuring fairness across the taxi industry whilst supporting government priorities. The government maintains that closing the tax scheme loophole benefits traditional cab operators and strengthens public finances for investment in public services.