Uber has restructured its contractual arrangements with drivers outside London to avoid paying millions of pounds under new VAT regulations introduced by chancellor Rachel Reeves, which took effect this month.

The ride-hailing platform has shifted from acting as the principal supplier of transport services to operating as an agent, effectively transferring 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.

The changes come as new rules announced in November's budget took effect, adjusting how VAT applies to minicab fares. The reform requires operators to account for 20 per cent VAT on the entire passenger fare when acting as principal, replacing the Tour Operators Margin Scheme that previously allowed some operators to pay VAT only on their commission.

In November, Reeves told the Commons the changes would end up "protecting around £700m of tax revenue each year". The Treasury framed the policy as a response to court rulings clarifying that ride-hailing platforms function as suppliers rather than intermediaries.

Under the agency model, Uber charges VAT only on its commission, whilst the remainder of the fare is treated as the driver's income for VAT purposes. Since individual drivers must only register for VAT once they exceed £90,000 in annual bookings, most will fall below this threshold, meaning the majority of fares outside London will not attract the sales tax.

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, said at the time of the budget announcement: “The government’s action today 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.”

The contractual overhaul significantly limits Uber's expected tax exposure compared with the structure assumed by the Treasury when the policy was announced. It also risks diluting the revenue impact of the reform by spreading VAT liability across tens of thousands of drivers rather than concentrating it at platform level.

An HM Treasury spokesperson said: "Ending this use of a niche tax scheme by online minicab firms will both benefit everyday cabbies with a fairer tax system and raise money to help deliver the country's priorities – cutting the cost of living, cutting waiting lists, and cutting debt and borrowing."

The Treasury did not confirm whether Uber's contractual changes would affect its estimate of protecting £700 million annually from the new policy. The revised contract also reveals that the company retains the right to take commission of up to 49 per cent on fares.

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