Tax return guide for self-employed taxi drivers

There are so many benefits to becoming a self-employed taxi driver. From being your own boss to choosing where, when and how long you work, it really gives you the freedom to earn as you want. But something that’ll never be a highlight of self-employment  is completing your annual self-assessment tax return.

 

It can be a real chore and really rather daunting if you’re new to it. That’s why the helpful team at Taxi Insurer have put together this guide to help you with this tricky task.

 

As a self-employed taxi driver, you’re running a small business, so it’s important you’re conscientious when it comes to accurately reporting your income and submitting any expenses claims.

 

It can be hard keeping track if you leave it to the last minute. Searching for receipts and invoices can be stressful and a real nightmare if your record keeping is not what it should be.  

 

Remember, paying the correct level of taxes is only one part of keeping yourself in business. Having the right insurance for your taxi in place is also a vital part of your financial armoury. Don’t leave yourself open to risk; call the Taxi Insurer team today and make sure you’re fully covered for every eventuality.

 

 

Self-assessment tax returns – a brief introduction

 

 

What is a self-assessment tax return?

 

In order to keep our country running in the way we want, everyone needs to pay the correct level of tax on the income they receive. In the majority of cases this is normally automatically assessed and deducted from your wages, pension or savings.

 

However, if you’re a self-employed person you’ll need to do this yourself through a self-assessment tax return. HM Revenue and Customs (HMRC) will then use this self-assessment to calculate how much income tax and National Insurance you need to pay for that tax year.

 

As a taxi driver you’ll be classed as self-employed from the moment your income exceeds £1,000 for the year. So, unless you drive a taxi only very occasionally, you’ll have to report your taxi driving income and pay the correct taxes on it.

 

 

How do you know you’re self-employed?

 

If you’re a self-employed taxi driver, you’ll need to register with HMRC so they can collect the proper level of tax from you. But how do you know if you’re self-employed? It isn’t always straightforward.

 

To help you figure this out, HMRC has created the invaluable Employment Status for Tax tool. This can also be an important resource to use if other drivers sometimes do work for you.

 

HMRC says you’re likely to be self-employed if you:

 

• Run your business for yourself.
• Have several customers at the same time.
• Can decide how, where and when you do your work.
• Can hire other people at your own expense to help you.
• Provide the main items of equipment needed to do your work.
• Are paid for a service you provide to make a profit.

 

If you’re unsure about how to go about becoming a self-employed taxi driver then read our handy guide.

 

 

What is a tax year?

 

The tax year in the UK runs from 6th April to the following 5th April. So, for example, the 2020/2021 tax year started on 6th April 2020 and ended on 5th April 2021. The 2021/2022 tax year will then run from 6th April 2021 until 5th April 2022.

 

 

What are the self-assessment tax return deadlines?

 

When it comes to self-assessment tax returns, timing is key and meeting deadlines is very important. As a self-employed taxi driver, you’ll need to send your self-assessment tax return and pay your taxes by 31st January after the end of the tax year. So, for the 2020/2021 tax year, you can submit your tax return online between 6th April 2021 and midnight on 31st January 2022.

 

There are a couple of important points to be aware of. First, if you haven’t registered as self-employed with HMRC before, you’ll need to first register as self-employed by 5th October 2021. Be warned, this can take some time. And if you miss the registration deadline you could end up facing a hefty financial penalty.

 

Second, while the online deadline for self-assessment tax returns for this tax year is 31st January 2022, the paper return deadline is sooner, on 31st October 2021. This is important to keep in mind if you don’t want to file online. Also, as part of paper-saving measures HMRC is no longer automatically sending paper self-assessment tax returns.

 

 

What are the penalties for missing the self-assessment tax return deadlines?

 

As we’ve already said, meeting deadlines are very important when filing and paying self-assessment tax returns. If you’re late then you could end up being fined both for late filing and late payment.

 

Fines for late tax returns are:

 

• From one day up to 3 months late – £100.
• Over 3 months late – £10 for every additional day up to a maximum of £1,000 (including the initial £100 fine).
• 6 months late – £300 or 5% of the tax due (whichever is higher). On top of previous penalties.
• 12 months late – A further £300 fine, or 5% of the tax due (whichever is higher). Again, this is on top of previous penalties. In the most serious cases, you may be fined 100% of the tax due.

 

Fines for late tax payments are:

 

• After 30 days – a charge equal to 5% of the tax due.
• After six months – a further 5% charge.
• After 12 months – a further 5% charge.

 

On top of these late tax payment penalties, you’ll also be charged interest. Since 7th April 2020, the late payment interest rate has been 2.6%. But this can change.

 

The government has a handy penalty calculator that’s very useful indeed.

 

A further important point to add regarding paper returns. If you think your return won’t reach HMRC by the 31st October deadline then consider whether it’s worth sending it off late.

 

HMRC will fine you for a late filing. Whereas if you hold off and file an online return instead then you’ll have until 31st January.

 

Self-assessment tax returns – a step-by-step guide for taxi drivers

 

 

1. Register as self-employed

 

As we said previously, if you haven’t done so before you’ll first need to register as self-employed with HMRC. Once you’ve done this, you’ll have to wait for them to send you a 10-digit Unique Taxpayer Reference (UTR) number. You can then activate your account for the online self-assessment service.

 

Be aware when registering you’ll also need your National Insurance number, address information, details of your self-employment, and the date when you became self-employed.

 

 

2. Get your information together

 

Before completing a self-assessment tax return it’s wise to make sure you have all the relevant information you need. It’s so much harder if you keep having to stop and start because you haven’t found all the documents. Here’s a handy checklist:

 

• 10-digit UTR.
• National Insurance number.
• Records of your income.
• Records of any expenses relating to self-employment.
• Contributions to charity or pensions which might be eligible for tax relief.
• P60 or other records of the income you’ve already paid tax on.

 

 

3. Fill in your self-assessment tax return

 

Once you’ve got all the information you need you can then set about filling in the main tax return form. You can do this either online via the HMRC website or by sending a paper self-assessment tax return (SA100) to HMRC in the post.

 

It’s important to be aware that even if you’re not tech-savvy it might be best to get familiar with the online process sooner rather than later. From April 2023, as part of HMRC’s Making Tax Digital programme, you’ll probably need to file your self-assessment digitally and provide updates every quarter via the digital platform.

 

Whichever option you choose, HMRC has various forms and help sheets to help you navigate the self-assessment tax return forms.

 

 

4. Fill in the supplementary pages

 

If you’re self-employed then you’ll also need to fill in so-called ‘supplementary pages.’ It’s here you’ll also enter any expenses connected to your self-employment. These can then be deducted from your tax bill.

 

There are two options when it comes to these supplementary pages. If your total income for the tax year before expenses is over £85,000 then you’ll need to fill in form SA103F.  Whereas if your total income for the tax year before expenses is less than £85,000 then you’ll need to fill in form SA103S.

 

If you have other income from property or other investments to declare then you may need to fill out other supplementary pages, too.

 

 

5. Claim your expenses

 

Tax bills can be hefty but if you’re a self-employed taxi driver then you can lower your tax bill by claiming back allowable business expenses. The three most important are:

 

1. Car lease payments – Leasing a taxi vehicle is a popular way for drivers to finance such a big investment in their business. You can claim back both the monthly cost of the lease as well as the expenses of servicing and taxi insurance, too.
2. New car purchase – If you decide to buy a new car solely for the purpose of your taxi business, then you’re entitled to relief on the total purchase. Depending on the car this is usually 18% a year, but can rise to 100% for the first year. Again, you can make additional claims for servicing and insurance.
3. Mileage – As an alternative to the above options, you can claim back an amount for the fuel you use when working. Currently HMRC says you’re allowed to claim 45p per mile for the first 10,000 business miles in the tax year. This drops down to 25p for each business mile over 10,000 in the tax year.

 

If you use your taxi for personal use as well as business, then you must reduce your expenses to reflect that. A great way to do this is to keep a mileage log. This will prove invaluable when it comes to calculating this figure and providing evidence to HMRC.

 

But expenses don’t stop here. You could also claim for:

 

• Maintenance and repairs to your taxi.
• Annual road tax and MOT tests.
• Costs of washing or cleaning your taxi.
• Taxi licence or other registration fees.
• Office expenses including rent, gas and electricity (this can even apply to home offices).
• Vehicle insurance.
• AA/RAC membership.
• Equipment hires, including radios.
• Accountancy fees.
• Phone and broadband charges for business.
• Parking and toll fees.

 

Remember, whatever you claim for, you’ll need to be meticulous in your record keeping and submitting evidence for each one.

 

You must keep these records of expenses for at least five years after the submission deadline of the relevant tax year. Just in case HMRC asks for them.

 

 

6. Pay your self-assessment tax bill

 

Once you’ve filed your self-assessment tax return, HMRC will tell you how much you owe. There are several ways to pay your self-assessment tax bill to HMRC.

 

Such as by online or telephone banking, direct debit, debit or corporate credit card, Clearing House Automated Payment System (CHAPS), Bacs, cheque or at your bank or building society. However you pay, the most important point is to ensure payment is made by the deadline.

 

If you’ve already filed your self-assessment tax return then you might also be able to pay your tax bill in instalments. How this works will depend on whether you want to make payments against your latest bill. Or whether you want to make advance payments against your next bill. Further details can be found on the government’s site.

 

Protecting your business with taxi insurance

 

There’s a lot of paperwork to deal with when you’re a self-employed taxi driver. That’s why the team of insurance specialists at Taxi Insurer is always looking to come up with ways to help.

 

Our taxi insurance comes in one simple policy that can cover everything from single vehicles to entire fleets.

 

We can also offer no claims bonus protection, cover for minibuses and MPVs, and a 24-hour claims management service.

 

Get a quick quote for taxi insurance today.

 

Policy benefits, features and discounts offered may very between insurance schemes or cover selected and are subject to underwriting criteria. Information contained within this article is accurate at the time of publishing but may be subject to change.