Yes, certain taxi driver expenses are allowable for tax in the United Kingdom. As a taxi driver, it is necessary to know what expenses you can and cannot declare when filing in your Self Assessment form. After all, you want to make sure you are making the most of all tax breaks that are available to you, yet the last thing you want is to have a fine for HMRC for declaring your expenses incorrectly.
Tax issue more or less can be a quite intimidating subject to tackle – but you don’t have to let it stop you from starting your own taxi business. And while you might have looked at other online resources on tax already, they can be difficult to understand.’
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How are Taxi Drivers Taxed in the UK?
As a taxi driver in the UK, you will be taxed on both your income and your car. The factors that influence the cost of your final tax bill include the amount of profit you make, as well as the type of vehicle you have. If you are self-employed as a ‘sole trader’ with earnings of £1,000 or more, or if you are a partner in a business partnership, then you are expected to complete a self assessment tax return for the relevant tax year.
Note that the amount of income tax you’ll pay is determined by how much weekly or monthly profit you make, as well as class 2 and class 4 National Insurance contributions. If you are self-employed, you can use the Gov.uk self assessment tax bill tool to work out how much you might need to pay. Howbeit, for the 2019/20 tax year, the tax free allowance is £12,500 – the same as the personal tax allowance. This figure refers to the amount you can earn before income tax applies.
Have it in mind that the tax bands are incremental, and that you don’t pay any tax on the tax free allowance, which is £12,500 in the 2019/20 tax year. The basic rate (20 percent) then applies for profit between the next two bands, and then the higher rate (40 percent) applies for the amount that falls into the next tax band, and so on.
HMRC have made it clear that expenses can only be claimed “wholly and exclusively” for business purposes. It simply means that only those expenses you have incurred during your work as a Private Hire Vehicle or Hackney carriage driver during the tax year can generally be claimed. Not everything is allowable; however, claiming expenses is still a useful way to reduce tax.
Your income (including tips) is £20,000, and you claim £5,000 in allowable expenses. You only pay tax on the remaining £15,000 – known as your taxable profit. If you are using an accountant to file your tax return then chances are that they are already claiming these for you. However, it is imperative to understand what these are and you can then have a conversation with your accountant should you have any questions.
Do not forget that your tax return is your responsibility and not your accountant. It is good practice to keep a regular log during the tax year of mileage and expenses. This will help make the accounting process easier and support you in the event of an enquiry from HMRC.
13 Allowable Tax Expenses for Taxi Drivers in the UK
Indeed there are so many ways of claiming tax expenses as a taxi driver for your vehicle, as well as for other common outgoings.
Taxi drivers are allowed to claim as an alternative to vehicle running costs, mileage allowances of 40p for the first 10,000 miles and 25p per mile thereafter. Note that you may not claim mileage allowance and vehicle running costs. Should you choose to claim the mileage allowance then keep good records of mileage covered, purpose of journey.
Taxi Capital Allowances
If you purchased a vehicle in the financial year in question and used the vehicle as a taxi, you can claim a first year writing down tax allowance of 25 percent of the cost of the taxi, restricted to 3,000 pounds for vehicles costing over 12,000 pounds. On vehicles acquired in previous tax years, you can claim 25 percent writing down allowance on the balance not yet claimed.
If you have bought and sold a vehicle used as a taxi during the financial year, the tax allowance is restricted to any loss made on resale and any profit made over the written down value is taxable as a balancing charge. First year allowance on non vehicle assets in the current tax year 2007-08 is 50 percent for small businesses.
Taxis Bought On Hire Purchase
Have it mind that you can claim capital allowances on the original cost of the vehicle, interest and other charges count as business expenses.
Taxi Running Costs
Taxi drivers should enter fuel costs in sales not motoring expenses. Do not claim fuel expenses in the taxi accounts when you are on holiday, the revenue will check should they inquire into your self assessment tax return. Taxi running costs also include repairs, servicing and parts including tyres, road tax, taxi insurance and AA/RAC membership. Include radio hire and taxi office costs in general administrative expenses. Meanwhile, remember that you may not claim mileage allowance and taxi running costs.
If you run your taxi business from home, you can claim a proportion of household expenses as business expenses in the taxi accounts. In the UK, household expenses are likely to be disallowed unless they are either specific to the business or a specific area of your home is devoted entirely to your taxi business. Using part of a room part time would not be sufficient to include the household expenses in the taxi driver accounts.
You can also claim expenses for partners who work for your taxi business and payments up to 100 pounds per week would not attract income tax or national insurance. However, any payments claimed in the taxi driver accounts is expected to be real payments for real work done. The Revenue naturally adopts a strict view on taxi expenses claimed for partners work as it is an area some people might use to reduce the tax liability. Care is required to justify the partner as an expense.
Taxi Licence Expenses
These particular expenses will be what you paid to the council or Transport for London during the tax year. You will need to retain appropriate evidence of this claim in all cases to show to HMRC in the event of an enquiry.
Taxi Radio Expenses
This will be the radio rent paid to the operator (taxi firm) during the tax year. You will need to retain appropriate evidence of this claim in all cases to show to HMRC in the event of an enquiry.
Taxi Meter Hire Expenses
This will be the fee paid to the company you have rented the meter from during the tax year. You will need to retain appropriate evidence of this claim in all cases to show to HMRC in the event of an enquiry.
This will be tickets for stay bought whilst working as a taxi driver (e.g. airport collections) during the tax year. Not fines/penalties. You will need to retain appropriate evidence (e.g. ticket) of this claim in all cases to show to HMRC in the event of an enquiry.
Congestion and Toll Expenses
This will more or less include congestion and toll charges paid whilst working as a taxi driver during the tax year. Not fines/penalties. You will need to retain appropriate evidence of this claim in all cases to show to HMRC in the event of an enquiry.
Note that this will be what you paid to an accountant regarding your taxi driving tax affairs during the tax year. You will need to retain appropriate evidence (e.g. invoice) of this claim in all cases to show to HMRC in the event of an enquiry.
This will be costs incurred for mobile usage (i.e. pay monthly or pay as you go) whilst working as a taxi driver during the tax year. Taxi drivers often use their mobile to call passengers and to use Google Maps etc. However, note that you are unable to claim for a mobile handset if it is not part of your pay monthly contract.
This is due to HMRC considering this to be a capital item (anything which you purchase that is expected to last more than a year) and not an expense. If the mobile is only used for business use (i.e. from taxi driving) then you can claim all costs.
Starting a taxi business and completing your first tax return can be quite challenging. As you can see, from registration with HMRC through to completing your tax return can be a lengthy and complex area. However, a tax advisor or accountant can be of immense help during this process, and although you do not need either of these to deal with your own affairs, there can be real benefits in using a professional.
These professional would ensure that you comply with legislation and HMRC guidance. They may review your affairs, and identify areas in which changes can be made in order for your affairs to become more tax efficient.
They would also ensure than everything is submitted and paid on time, so that your hard-earned cash is not wasted on interest and penalties. Also, they would identify your needs in order to advise you and take the headache away from you, so that you can carry on doing what you do best.