Uber has swerved paying millions of pounds to the UK exchequer under Rachel Reeves’s new “taxi tax” after the ride-hailing app rewrote contracts with its drivers.

The move came as rules announced in November’s budget took effect, which adjusted how VAT is payable on minicab fares and would have resulted in the whole Uber fare becoming subject to the 20% sales tax.

In November, Reeves told the Commons the changes would end up “protecting around £700m of tax revenue each year”.

However, updated terms issued to Uber drivers from January 2026 mean the technology firm will act as an agent, rather than as the supplier, of transport services outside London. The move means drivers make a contract directly with their passengers – so they must charge any VAT due on the fare, while Uber only adds VAT to its commission.

As most drivers are not thought to be making more than £90,000 in bookings a year, and therefore do not have to charge VAT, the majority of Uber fares outside London will avoid becoming more expensive, since the 20% sales tax will not apply.

The new contracts do not relate to London, where the agency model is not allowed under Transport for London rules. As a result, Uber passengers in the capital will pay VAT on their fares.

Uber’s change to the terms with its drivers has been expected since the budget announcement.

At the time, Andrew Brem, Uber’s regional general manager for the UK, said: “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 … 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.”

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.”

It did not say if Uber’s changes would affect its estimate of “protecting” £700m a year of receipts from the new policy.