Passenger transport in the UK is zero rated when the vehicle, ship or aircraft is designed or adapted to carry at least 10 passengers, and scheduled flights and international journeys are zero rated whatever their size. Taxis, private hire cars and other vehicles with fewer than 10 seats are standard rated at 20%, as are trips sold together with admission to an attraction run by the same or a connected business.

Where does the zero rate come from?

Item 4 of Group 8 of Schedule 8 to the Value Added Tax Act 1994 zero rates the transport of passengers in any vehicle designed or adapted to carry not less than 10 passengers, by a universal service provider, on any scheduled flight, and from a place within to a place outside the UK or the reverse, to the extent the service is supplied in the UK. HMRC’s guidance is VAT Notice 744A, which applies to supplies from 1 January 2021 in both Great Britain and Northern Ireland.

The zero rate is not limited to bus and rail operators. Paragraph 4.1 of the notice says it covers pleasure cruises, cliff lifts, coach and train excursions including steam railways, horse drawn buses, mystery trips, sightseeing tours, the transport element of park and ride schemes, and carrying parachutists or divers where only transport is provided. It does not matter whether you are the main contractor or a subcontractor, or whether you are paid by each passenger or by a group.

What counts as passenger transport?

Notice 744A says passenger transport is supplied when a vehicle, ship or aircraft is provided together with a driver or crew to carry passengers. Hiring a vehicle without a driver is a hire of a means of transport, not transport, and is standard rated. Providing a driver alone, hiring a vehicle with crew to make a film or carry goods, donkey rides, ghost trains, miniature railways and fairground rides are also outside the passenger transport rules.

If you supply vehicles with drivers who are not your employees, paragraph 2.5 sets out records HMRC expects to see before it accepts the supply as transport, including a driver register, references, training assessments and evidence that you control which driver does each journey.

How is the 10 passenger test applied?

Paragraph 4.1 counts seats including those for the driver and crew. Paragraph 4.7 says it is the physical capacity of the vehicle that decides the liability, not the number of people a limousine is licensed to carry. Paragraph 4.8 looks at the vehicle actually used: if a coach breaks down and you send a seven seat people carrier instead, that journey is standard rated, and if you use a mix of vehicles you apportion.

There is a specific relief for vehicles adapted for disabled passengers. Under section 6, transport is zero rated if the vehicle could seat 10 or more conventionally, its capacity is below 10 only because of facilities for disabled passengers such as wheelchair spaces, and it has not been reduced for any other reason. Replacing a seat with a storage unit would break the condition.

The reduced rate of 5% applies to cable suspended vehicles such as cable cars, ski lifts and chairlifts with fewer than 10 seats, under paragraph 4.2.

Why are taxis standard rated, and who accounts for the VAT?

A taxi or private hire car has fewer than 10 seats, so paragraph 4.6 leaves it standard rated. VAT Notice 700/25 confirms the fares are standard rated, together with extras such as baggage and waiting time. Voluntary tips are outside the scope of VAT. Minibuses with 10 or more seats are zero rated even if run by a taxi firm.

The bigger question for the trade is who makes the supply. Notice 700/25 says:

  • A self employed owner driver is in business on their own account and must register once taxable supplies exceed the threshold, adding back any vehicle rental, radio or agency charges the firm deducts before paying them.
  • A firm whose drivers are employees is the principal and accounts for VAT on the full fares.
  • A firm using self employed drivers may be their agent, typically relaying bookings for a fee and collecting account fares on their behalf. Then the drivers make the transport supplies, VAT is due on fares only if the driver is registered, and the firm accounts for VAT on its agency and rental charges to drivers.
  • A firm can be agent for cash work and principal for account work only if the contracts say so and the two sides genuinely operate differently.

The registration threshold is £90,000 of taxable turnover in a rolling 12 months. The agent and principal analysis follows the general approach in agent or principal for VAT.

When is large vehicle transport still standard rated?

Section 8 of Notice 744A removes the zero rate in four situations, even for coaches and boats:

  1. Transport that includes the right of admission to a fairground, museum, stately home, theme park, zoo, pier or similar place of entertainment or interest, whether the price is inclusive or the transport is charged separately.
  2. The right to use a vehicle to, from or within such a place where the transport and admission are supplied by the same or connected persons, such as a monorail or boat ride inside a park.
  3. Transport between a car park and an airport terminal when you or a connected person supply the parking.
  4. Flights held out as entertainment or the experience of flying, such as hot air balloon rides and pleasure flights returning to the airport of departure.

Independent operators are not caught. A coach trip to a theme park by a coach company with no link to the park stays zero rated under paragraph 8.5, as does transport to places with free public access such as national parks and seaside towns.

How are journeys that leave the UK treated?

The place of supply of passenger transport is where the transport physically takes place. Paragraph 3.2 says a journey taking place both inside and outside the UK is zero rated for the UK part whatever the size of the vehicle, provided it is scheduled to stop in another country. The part outside the UK is outside the scope of UK VAT. A journey that begins and ends in the UK without a scheduled stop abroad is treated as wholly in the UK. The wider principles are in place of supply of services.

Are extras sold with a ticket zero rated too?

Incidental services that form part of the journey take the same rate as the fare: accompanied luggage and pets, seat reservations, sleeping berths and Pullman supplements. Air Passenger Duty passed on to the passenger is treated as part of the fare. Ancillary services are separate and normally standard rated, including catering, car parking, left luggage, platform tickets and carriage of unaccompanied luggage. Perks bundled into a ticket can be treated as part of the transport only if they meet the conditions in paragraph 9.6.

If you buy in transport from someone else and resell it as principal, paragraph 4.10 says you must use the tour operators margin scheme.

What does this look like in practice?

Illustration only. A VAT registered private hire business takes two wedding bookings. For the first it sends a 16 seat minibus with its own employed driver for £400; this is zero rated, so no VAT is added. For the second it sends an eight seat executive car for £300; this is standard rated, so it charges £300 plus £60 VAT. If the 16 seat minibus broke down and two eight seat cars were sent instead, the first booking would also become standard rated.

What mistakes does HMRC find?

  • Counting passenger seats only, or relying on the licensed capacity, instead of the physical seats including the driver.
  • Zero rating a booking that was actually fulfilled by a smaller substitute vehicle.
  • Zero rating road trains or boat trips run by an attraction that also charges admission.
  • Treating self hire of a minibus as zero rated transport.
  • Taxi firms treating themselves as agents for drivers when their contracts and practices show they are principals.

Rates across other goods and services are summarised in VAT rates explained.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.