As a taxi driver, understanding the costs that can be claimed on your taxes is crucial for maximising your income and minimising your tax liability. This guide provides an extensive list of expenses taxi drivers can claim, demystifying the complex world of deductible expenses.
Introduction to taxes for taxi drivers
As a taxi driver, you are considered self-employed for tax purposes. This means that you need to register for self-assessment with HM Revenue & Customs (HMRC), keep meticulous records, and produce yearly accounts. Understanding the array of deductible expenses available to you can be complex. In this guide, we shed light on these intricacies, exploring the list of expenses taxi drivers can claim on taxes. If you’re unsure about how to go about becoming a self-employed taxi driver then read our helpful guide.
Vehicle-related expenses
The backbone of being a self employed taxi driver is your vehicle. Consequently, many of the costs associated with owning, operating, and maintaining your vehicle can be declared as expenses.
These include:
- Fuel costs: The cost of petrol, diesel or electricity for your vehicle can be claimed as a business expense.
- Maintenance and servicing: Costs for repairs, servicing, and the general upkeep of your taxi are deductible. This includes the cost of your annual MOT test.
- Vehicle insurance: The cost of your taxi insurance is a deductible expense.
- Road tax: You can claim the cost of your annual road tax.
- Cleaning costs: The cost of washing or cleaning your taxi to maintain a presentable appearance can also be claimed.
Office and administrative costs
If you manage your taxi business from an office, whether at your home or a separate location, certain administrative costs can be deducted.
These include:
- Office supplies and equipment: The cost of office supplies, equipment, and any software or subscriptions necessary to run your business can be deducted.
- Phone and internet: The business portion of your phone and internet bills can be claimed.
Additional allowable expenses
Beyond vehicle and office expenses, there are several other costs that you can include in your list of expenses taxi drivers can claim.
These encompass:
- Licence and registration fees: The cost of any licences or registration fees associated with your taxi business can be claimed.
- Parking and toll fees: Any parking or toll fees incurred while on the job can be claimed as a business expense.
- Accountancy fees: If you hire an accountant to manage your financial affairs, their fees can be claimed.
Capital allowances
If you're a taxi driver, you are running your own business and have significant capital expenses, like the cost of your vehicle. Capital allowances are a way of obtaining tax relief on some of the assets you purchase for your business. They allow you to deduct some or all of the value of the asset from your taxable profits, thereby reducing your tax bill.
A capital allowance can be claimed for the cost of your vehicle and other assets used in your taxi business. For most vehicles, the rate is 18% per annum. However, traditional Hackney Carriages, or black cabs, are eligible for a 100% Annual Investment Allowance (AIA).
This can be a substantial benefit for taxi drivers, considering the high costs associated with purchasing, running and maintaining a taxi. However, claiming capital allowances can be a complex process with many rules and exceptions, so it's important to seek professional advice to ensure that you're not missing out on any potential savings. The HM Revenue and Customs (HMRC) website provides comprehensive information.
Mileage allowance claims
Taxi drivers can claim mileage expenses using one of two methods:
- Utilising the simplified expenses scheme, where you claim a flat rate per mile travelled (45p for the first 10,000 miles, reducing to 25p per mile thereafter).
- Listing all your vehicle-related expenses individually.
While the simplified expenses method may be more straightforward, listing individual expenses can often result in larger deductions.
Insurance costs
Insurance is a significant expense for taxi drivers, but it's also a necessary one. Fortunately, the cost of your taxi insurance can be claimed as a taxi driver expense, helping to reduce your overall tax bill. Remember to renew your taxi insurance with Taxi Insurer today!
Dealing with personal use
If you use your taxi for personal purposes as well as for your business, you'll need to account for this when claiming expenses. For instance, if you use your taxi 20% of the time for personal use, you should reduce your vehicle-related expenses by 20%. Check out our blog on common problems taxi drivers face and how to avoid them.
Record keeping
Good record keeping is essential for claiming your business expenses accurately. It's recommended to keep records of your income and expenses for at least six years. Records can be kept in a simple cashbook, on a spreadsheet, or using specialised bookkeeping software. This will eventually help with your self assessment tax return.
Tips for managing self assessment as a self employed taxi driver
- Understand the basics: Familiarise yourself with the process of the Self Assessment. In essence, it is a system HM Revenue and Customs (HMRC) uses to collect Income Tax. All self-employed people and businesses, except for limited companies, are expected to submit a Self Assessment tax return.
- Register early: If you are newly self-employed, register for Self Assessment as soon as possible. It can take up to 20 working days for HMRC to send you your Unique Taxpayer Reference (UTR) number, which you need to submit your tax return.
- Keep records: Maintain accurate and up-to-date records of all your income and expenses. This includes invoices, receipts, bank statements, and any other financial documents. These records are crucial for accurately completing your Self Assessment and can be a lifesaver if HMRC decides to investigate your tax returns.
- Understand allowable expenses: Not all business expenses can be deducted from your income for tax purposes. It's important to understand which expenses are allowable and which are not.
- Deadlines: Be aware of the deadlines. The tax year in the UK runs from 6 April to 5 April the following year. Online tax returns must be submitted by 31 January of the following year along with any tax owed. Missing the deadline can result in penalties.
- Payment on account: Understand the 'Payment on Account' system which applies to the self-employed. This means paying your next year's tax bill in two instalments (one at the end of January and one at the end of July) based on your previous year's earnings.
- Use software: Consider using tax software. These tools can help you keep track of your income and expenses, calculate your tax, and submit your return directly to HMRC.
- Seek Professional Help: If your financial affairs are complex, it might be worth getting help from a tax adviser or accountant. They can help ensure your tax return is accurate and that you're claiming all the tax reliefs you
Conclusion
Understanding the list of expenses taxi drivers can claim on taxes is vital for maximising your income and ensuring your tax return is accurate. While it may seem daunting, with careful record keeping and a clear understanding of allowable expenses, it becomes a manageable part of running your taxi business. For those in need of further assistance, professional accountants are available to guide you through the process and ensure you claim all the expenses you're entitled to.
Remember to renew your taxi insurance with Taxi Insurer today! Call one of our friendly insurance specialists on 0192 645 4929 or click here to get a quote.
Your understanding of the list of expenses taxi drivers can claim will have a direct impact on your financial success as a taxi driver. With this guide, you'll be well-equipped to navigate the world of deductible expenses and claim what you're entitled to.