London PCO Regulations 2026: VAT and Emissions
TfL continues to update its rules for private hire drivers in London. This year has brought two significant changes in TfL’s policy. First, there is a total restructuring of VAT rules. Second, a continued tightening of emissions standards.
The VAT shake-up alone is the biggest tax change the private hire sector has seen in years. On the emissions front, the exemption from the congestion charge for electric vehicle drivers in central London has officially ended.
In this article, we will discuss the London PCO regulations in 2026 for VAT and emissions to explain what’s changed and what it means. Let’s begin.
Article Highlights
This article covers:
- VAT rule changes in 2026
- Euro 6 compliance in 2026
- 2026 emission rule changes
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VAT Rules for Private Hire Drivers in 2026
Here are the updated VAT rules for private hire drivers in London:
Registration for VAT
Most PCO drivers do not need to register for VAT. Under UK tax law, you only register for VAT once your annual taxable turnover exceeds the current threshold of £90,000. For context, that works out to roughly £1,730 per week in gross bookings. The vast majority of PCO drivers earn below this figure. Therefore, compulsory registration does not currently apply to them directly.
How VAT Affects Your Earnings
The main change in London PCO regulations in 2026 for VAT was the removal of private hire vehicle and taxi operators from eligibility for the Tour Operators’ Margin Scheme, or TOMS. This scheme previously allowed operators to account for VAT only on their profit margin. For instance, if an operator charged a passenger £20 and paid the driver £15, VAT applied to the £5 margin. It did not apply to the £20 fare.
From 2 January 2026, that rule is no longer in effect. Any VAT-registered entity in the private hire sector must now apply the standard 20% VAT rate to the full fare.
New VAT Rules Impacting 2026
PHV operators who previously used TOMS faced an immediate increase in their VAT liability starting from January 2026. Operators who already accounted for VAT on full fares see no change to their position. This includes the majority of smaller, regional minicab firms that never used TOMS.
For drivers doing account work, corporate transfers, or chauffeur-style jobs where you operate directly as the principal, your VAT obligations are direct. Operating as the principal means the client pays you the full fare, and you pay no operator.
If your annual gross from those activities crosses £90,000, VAT registration is compulsory. If you are already registered, you need to account for VAT on the full amount billed to the client. Do not account for VAT on any margin.
Also Read: TfL Licence Suspension Rules: Main Reasons & How to Avoid Them
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London PCO Regulations in 2026 for Emissions
These are the emission rules in 2026 for the private hire sector:
Zero Emission Capable (ZEC) Requirement
Since 1 January 2023, TfL has required all vehicles licensed as Private Hire Vehicles in London to meet Zero Emission Capable standards. If your car already holds a PHV licence, that vehicle is not subject to this rule.
TfL ZEC Criteria:
- Rule 1: The car should emit no more than 50g/km of CO₂ AND have a minimum zero-emission (electric-only) range of 10 miles
- Rule 2: The car should emit no more than 75g/km CO₂ AND have a minimum zero-emission range of 20 miles
Euro 6 and ULEZ Compliance
The Ultra Low Emission Zone now covers all 32 London boroughs and the City of London. In 2026, every single journey you make as a PCO driver takes place inside the ULEZ. There is no longer an area in Greater London where ULEZ does not apply. To avoid paying the daily ULEZ charge (£12.50), petrol vehicles must meet Euro 4 standards while diesel vehicles must meet Euro 6 standards.
2026 Congestion Charge Changes Drivers Must Know
The biggest emissions-related change in 2026 caught many EV drivers off guard. Electric vehicles are no longer exempt from the Congestion Charge. For years, driving an electric car meant you could enter the Congestion Charge zone without paying the daily charge (£15 previously).
From 25 December 2025, that exemption ended. Now all vehicles, including fully electric cars, must pay the Congestion Charge when driving in the central London zone during charging hours. The new daily charge is £18. However, EVs registered with Auto Pay will get a 25% discount.
Stay Compliant and Profitable in 2026
On the VAT side, the most important thing you can do right now is get your bookkeeping in order if it is not already. Track your gross earnings every week, not just what lands in your bank account.
On the vehicle side, if you are currently driving a licensed non-ZEC vehicle, know when your current vehicle hits TfL’s age limit. Next, build a savings plan or financing plan for a ZEC replacement.
TfL and the Mayor of London have historically offered support schemes for drivers switching to ZEC vehicles. Explore whether there are any grant schemes for buying ZEC vehicles.
Also Read: The Future of Ride-Hailing: Key Technologies Shaping the Industry
Start Earning Today.
Conclusion
In 2026, the VAT changes that remove TOMS eligibility are reshaping platform economics. Know whether your earnings put you anywhere near the VAT registration threshold. Keep an eye on your vehicle’s age and TfL standards for compliance. Budget for the Congestion Charge cost in your weekly expenses. Treat your PCO operation as a business with proper accounts, planning, and advice from people who know this specific industry. The drivers who thrive through this year will be the ones who know the London PCO regulations in 2026, do the maths, and make informed decisions.
Frequently Asked Questions
Is there VAT on TfL ULEZ charge?
No. The ULEZ charge is a government-imposed fee, not a service, so VAT does not apply.
What are TfL's zero-emission rules?
TfL requires all newly licensed private hire vehicles to meet Zero Emission Capable (ZEC) standards. This means either emitting no more than 50g/km of CO₂ with at least 10 miles of electric range, or no more than 75g/km of CO₂ with at least 20 miles of electric range.
How much is the ULEZ charge in London?
The daily ULEZ charge is £12.50 for non-compliant vehicles.
How much is the Congestion charge in London in 2026?
The Congestion Charge is £18 per day. Electric vehicles are no longer fully exempt, but those registered with Auto Pay receive a 25% discount.
Do I pay ULEZ twice in one day?
No. The ULEZ charge is a once-per-day fee, regardless of how many times you enter or drive within the zone that day.
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