Changes announced in the Autumn Budget have removed the use of a niche VAT scheme known as the Tour Operators Margin Scheme (TOMS) for private hire vehicle operators from January 2026.

TOMS was originally designed for tour operators selling travel packages. However, some large ride-hailing firms had used it to reduce their VAT liability by charging VAT only on their commission, rather than on the full fare. Following ongoing legal uncertainty, the government legislated to exclude taxi and private hire journeys from the scheme.

The change was expected to level the playing field, particularly benefiting black cab drivers in London and smaller taxi firms from outside London where passengers contract directly with the driver.

In practice, the outcome has been more complex. Due to Transport for London licensing rules, most fares in London are now subject to VAT. Outside London, some ride-hailing platforms, including Uber, have restructured arrangements so they act as agents rather than suppliers. This change moves the VAT liability to the drivers. As most drivers earn below the VAT registration threshold of £90,000 this means that on rides outside of London VAT is often still not charged.

For businesses, these changes have important implications when reclaiming VAT. Input VAT can only be reclaimed where it is clearly shown on a valid VAT invoice or receipt. If VAT is not separately identified, no reclaim is permitted, although the expense may still be deductible for Corporation Tax purposes.

The VAT Flat Rate Scheme is designed to simplify the way a business accounts for VAT and, in doing so, reduce the administrative burden associated with VAT compliance. The scheme is available to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000.

The concept of a “limited cost trader” was introduced in April 2017 and can affect the effective VAT payable by businesses using the Flat Rate Scheme. Where a business is classified as a limited cost trader, a fixed rate of 16.5% applies. This is significantly higher than the typical standard flat rate percentages, which can be up to 14.5%.

A limited cost trader is defined as a business whose VAT inclusive expenditure on relevant goods is either:

• less than 2% of VAT inclusive turnover in a prescribed accounting period; or
• more than 2% of VAT inclusive turnover but less than £1,000 per annum (where the prescribed accounting period is one year; if shorter, the threshold is adjusted proportionately).

For some businesses the outcome of the test will be straightforward. Other businesses will need to carry out a simple calculation using existing records to determine whether they meet the limited cost trader definition. Where a business falls within the definition of a limited cost trader, the Flat Rate Scheme is often unlikely to be beneficial. 

It is important to understand both when VAT registration is required and the ongoing obligations that follow. The VAT registration threshold is currently £90,000 of taxable turnover, although businesses below this level can choose to register voluntarily.

Once VAT registered you must ensure you meet your required responsibilities. Businesses must charge VAT on their sales, known as output VAT, while also incurring VAT on most purchases, referred to as input VAT. In practice, VAT-registered businesses act as a collector on behalf of HMRC, charging VAT to customers and paying it over periodically.

The amount payable to HMRC is the difference between output VAT and recoverable input VAT. Where input VAT exceeds output VAT, a refund may be due. However, it is important to note that not all input VAT is recoverable, and care should be taken to ensure claims are valid.

Having a VAT registration also brings with it a number of administrative responsibilities. As a VAT-registered business you must:

• Include VAT in the price of all goods and services at the correct rate.
• Keep records of how much VAT you pay for things you buy for your business.
• Account for VAT on any goods you import into the UK.
• Report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HMRC. This is usually done every 3 months but there are other options available.
• Pay any VAT you owe to HMRC.

The VAT treatment of car leasing is an important consideration for businesses that incurs VAT on these costs. 

In general, leasing companies are able to recover the VAT incurred on the purchase of cars, provided the vehicles are leased out at a commercial rate. 

For businesses leasing a car, however, the position is more restrictive. Where a business leases a ‘qualifying car’ for business use, only 50% of the VAT on the lease payments is typically recoverable. This restriction reflects an assumed element of private use, even if the car is mainly used for business purposes.

There are some exceptions to this rule. Where a car is used primarily for taxi services (hire with a driver) or for driving instruction, businesses can usually recover 100% of the VAT charged on the lease.

It is also worth noting that the 50% block applies not only to long-term leasing but also to short-term self-drive hire, such as daily rentals used to temporarily replace a company car. The 50% restriction does not apply where a car is hired for a period of no more than 10 days, provided it is used exclusively for business purposes.

Understanding these rules ensures is important to ensure the correct amount of VAT is recovered on car leasing costs. 

Reclaiming VAT on a self-build home project can significantly reduce the overall cost of building or converting your property. The VAT DIY Housebuilders Scheme is a special VAT scheme that allows private individuals to benefit from the same VAT advantages as professional property developers. Under this scheme, the qualifying construction costs of a new home and certain types of conversion work can effectively benefit from VAT zero-rating. This allows qualifying homeowners to reclaim the VAT paid on eligible building materials.

A claim can be made for qualifying building materials on which VAT has been charged. Qualifying materials include most materials incorporated into a new building or conversion which cannot easily be removed. This includes items such as bricks, timber, roofing materials, plumbing, wiring and plaster. Items such as fitted furniture, carpets, curtains, and certain domestic appliances are excluded from the scheme, even if they are installed as part of the build.

In most cases, you must submit a claim within six months of completing the new build or conversion project. Completion is usually evidenced by a completion certificate or similar official documentation.

Claims are normally submitted online. However, if you are unable to use the digital service, you can apply using paper forms. There are two main forms available: VAT 431NB for new build properties, and VAT 431C for qualifying conversions.