VAT Tour Operators’ Margin Scheme (TOMS): Autumn Budget 2025 Changes

The Tour Operators’ Margin Scheme (TOMS) is a special VAT accounting regime for businesses that buy in travel services (hotels, transport, tickets) and resell them as part of travel packages. Under TOMS, the operator accounts for VAT only on its margin (the difference between what it charged customers and what it paid suppliers) rather than charging 20% VAT on the full retail price.

As part of the trade-off, businesses applying TOMS cannot reclaim input VAT on the costs they buy in. And now, from 2 January 2026, private hire and taxi services will generally be excluded from TOMS unless they form part of a qualifying travel package.

How Ride-Hailing Platforms Used (or Argued They Could Use) TOMS

Some platform operators argued their model was analogous to a tour operator’s, i.e., the platform arranges and bundles travel (a passenger journey) by buying in transport from a driver and reselling that journey to a passenger. If the platform is treated as the principal (i.e., supplying the service rather than merely acting as an agent), it could apply the TOMS scheme and account for VAT on its margin instead of 20% of the full fare.

This treatment lowered VAT cash turned over to HMRC because the margin was much smaller than the full fare. Tribunal decisions over recent years have tested this approach, and while platforms could use it for historic periods, from 2 January 2026 onward, PHV/taxi services are generally excluded from TOMS.

What Was the Present Scenario Around TOMS VAT?

Two Upper Tribunal rulings had created conflicting interpretations of TOMS.

In the Bolt vs HMRC TOMS case, the tribunal ruled that ride-hailing services could qualify for TOMS, finding that Bolt's model was comparable to a travel agent booking car journeys.

However, in the different HMRC vs Sonder case (January 2025), the tribunal found that Sonder's serviced accommodation business fell outside TOMS because the supply was materially altered and was not for the direct benefit of the traveller.

How Has the Budget Cleared the Confusion Around TOMS?

On 26 November 2025, the government published a formal policy note titled “Tour Operators’ Margin Scheme: Change in legislation for Private Hire Vehicle Operators.” This note announced that private hire and taxi journey suppliers will be excluded from TOMS with effect from 2 January 2026, except where their journey is supplied as part of a broader travel package. The stated aim here is to prevent ride-sharing apps from exploiting a scheme intended for tour operators.

The Treasury had rejected a bespoke margin scheme for the sector, which would have cost approximately £750 million annually.

Practical Implications of this Announcement

Private hire operators must now account for VAT at 20% on full fares rather than on their margin alone. This will likely result in fare increases for passengers. Affected businesses need to update their systems before the January 2026 deadline.

Accommodation resellers remain in uncertainty. Their TOMS eligibility depends on the outcome of Sonder's appeal, listed for February 2026. Reports of Sonder's US insolvency filing raise the possibility that the appeal may not proceed, leaving the restrictive tribunal decision in place.

Recommended Actions

Businesses currently using TOMS should review their position against the Sonder criteria, prepare contingency plans for standard VAT accounting and examine contractual arrangements regarding liability for any future VAT increases.

Conclusion

The scope of the Tour Operators’ Margin Scheme has been clarified. Private hire and taxi services are explicitly excluded from TOMS from 2 January 2026, unless part of a qualifying travel package. This change resolves previous uncertainties stemming from tribunal rulings and signals a shift toward standard VAT treatment for ride-hailing platforms.

Businesses affected should act promptly to update their accounting systems, review their eligibility for TOMS and plan for potential fare adjustments. For accommodation resellers, the final picture will depend on the outcome of the Sonder appeal, making careful monitoring and contingency planning essential. Staying ahead of these changes will ensure compliance and minimise VAT-related disruptions in the year ahead.