A guide to self assessment for taxi drivers

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Date: 20 February 2020

A self-employed taxi driver stands by his car at a taxi rank, waiting for a passenger.

Taxi drivers are expected to accurately report their income while simultaneously submitting evidence of fuel and maintenance fees - often resulting in a last-minute search for invoices and receipts.

But there are ways to make this whole process easier - and more cost effective. GoSimpleTax’s Mike Parkes provides a step-by-step guide to the self assessment tax return for all taxi and Uber drivers.

1. Register as self-employed

If you’re just starting out, you’ll be classed as self-employed from the moment your gross trading income exceeds the tax-free trading allowance of £1,000.

You will need to inform HMRC that you’re self-employed. To do this:

  • register as self-employed;
  • wait for your 10-digit Unique Taxpayer Reference (UTR) number to be delivered;
  • activate your online account.

If you’ve already registered for a self assessment in the past but have not yet registered to use HMRC’s online services, you can simply sign in using your existing UTR. This can be found on any correspondence you’ve previously had from HMRC concerning your tax return.

When registering, you’ll additionally need your National Insurance number, as well as all relevant information regarding your address, the nature of your self-employment and when exactly you started.

2. Understand your expenses

You may be able to lower your self assessment tax bill by claiming allowable business expenses.

There are many ways of reducing your tax liability, but as a taxi or Uber driver, here are three that may be more relevant:

  • Mileage: The fuel you use to travel for work can qualify as an allowable expense. Specifically, 45p per mile is the tax-free approved mileage allowance of the first 10,000 miles in the tax year. However, if you claim this, you won’t be entitled to either of the below.
  • New car purchase: If you purchase a car solely for taxi driving, you’re entitled to relief on the total purchase. This will extend to servicing and insurance too.
  • Car lease payments: You are also able to claim back the monthly cost of any car lease. Again, additional claims can be made on services and insurance.

Please note that if you use a car for business and personal journeys, you must reduce your expenses to reflect any private user percentage. Keeping a mileage log will help you calculate this figure and also provide evidence to HMRC.

But vehicle-related expenditure isn’t the only cost that you can claim against. Should you purchase a computer for work purposes, that can be used to reduce your liability.

What’s more, if you conduct admin tasks in a home office, this too can be used to reduce liability. You may be eligible to claim a fixed amount based on the number of hours you work at home using HMRC guidance.

However, in order to benefit from any of these expenses, you’ll need to meticulously record and submit evidence of each one - a task that is nigh-on impossible should you leave it to the last minute.

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3. Know your deadlines

In order to submit your self assessment tax return in a timely manner, you need to have registered by 5 October. For example, if you started your new business in the tax year ending 5 April 2020, you will need to have registered by 5 October 2020. The online submission deadline for your tax return would be 31 January 2021.

If you prefer to submit via a paper return, the deadline for submission is midnight on 31 October 2020. Failure to submit your tax return on time will lead to an automatic £100 late filing penalty.

You will also have to pay any tax due by 31 January 2020. If this bill exceeds £1,000, you’ll usually pay an additional amount towards next year’s bill - known as a payment on account. This payment on account is 50% of the tax due. For example, if you owe £1,200 for the 2019/20 tax year, this must be paid in full by 31 January 2020 - together with £600 as a payment on account towards 2020/21. The total payable would therefore be £1,800.

You would also be required to pay a second payment on account of £600, either on or before 31 July 2020. Then, when you file your 2020/21 tax return, you will have pre-paid £1,200 of the tax you owe.

Sponsored post. Copyright © 2020 GoSimpleTax offers tax return software that can help you manage your self-assessment.

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