Streamlining Taxi Driver Accounting: A Guide to Easier Tax Returns

Understanding Self-Assessment Tax Returns for Taxi Drivers

Self-employed taxi drivers, like other independent professionals, must annually submit a self-assessment tax return to report their earnings and expenses. The deadline for submitting these accounts, which allows tax authorities to calculate the tax owed, is September 30th. However, the final date to submit the self-assessment tax return is January 31st. Failing to meet this deadline results in a £100 penalty fine.

The Cost-Effective Approach to Taxi Driver Accounts

Traditionally, taxi drivers might gather all their receipts and expenses and hand them over to an accountant, who would then prepare the self-assessment tax return. This service can cost between £150 to £450. However, this expense is not necessary. By taking a proactive approach and utilizing professional taxi accounting software, drivers can prepare their accounts and tax returns independently.

Maximizing Deductions with Mileage Allowances

Taxi drivers have the option to claim mileage allowances as an alternative to vehicle running costs. The current rates are 45p for the first 10,000 miles and 25p per mile thereafter, according to HM Revenue & Customs (HMRC). It's important to note that drivers cannot claim both mileage allowance and vehicle running costs. For those opting for mileage allowance, maintaining accurate records of mileage, including the purpose of each journey, is essential.

Capital Allowances for Taxi Drivers

When purchasing a vehicle for taxi use, drivers can claim a first-year writing down tax allowance. For vehicles bought in the financial year 2021-22, the allowance is 18% of the cost of the taxi, with a maximum Annual Investment Allowance (AIA) of £1 million available for most types of assets, including vehicles, as stated by HMRC. If a taxi is sold, the capital tax allowance claimable is the difference between the tax-adjusted base cost and the sale proceeds.

Accounting for Taxis on Hire Purchase

For taxis acquired through hire purchase, drivers can claim capital allowances on the original cost of the vehicle. Interest and other charges are considered business expenses and should be included in the self-assessment tax return under the appropriate section for finance charges.

Deductible Taxi Running Costs

When completing the self-assessment tax return, fuel costs should be entered as cost of sales, not motoring expenses. Other deductible running costs include repairs, servicing, parts, road tax, taxi insurance, and breakdown cover memberships. Administrative expenses, such as radio hire, should be categorized under general administration expenses.

Claiming Household Expenses

If the taxi business is run from home, a proportion of household expenses may be claimed as business expenses. However, these claims are only valid if the expenses are specific to the business or if a dedicated area of the home is used solely for business purposes.

Spouse Employment Expenses

Expenses for a spouse working in the taxi business can be claimed, with payments up to £100 per week exempt from income tax and national insurance. It's crucial to ensure that these payments are for genuine work to avoid scrutiny from tax authorities.

Other Deductible Expenses

All business expenses should be recorded in the designated expense boxes on the self-assessment tax return. It's advisable to avoid significant entries in the 'Other Expenses' section to reduce the likelihood of a tax enquiry.

The Importance of Detailed Records

Keeping detailed records of income and expenditure is vital for determining the most tax-efficient options, such as whether to claim mileage allowances or vehicle running costs. Without proper records, drivers may miss out on tax savings. Professional taxi accounting software can automate the comparison of mileage allowances with running costs, simplifying the decision-making process.

In conclusion, by maintaining meticulous records and understanding the available allowances and deductions, taxi drivers can manage their accounts more effectively and potentially reduce their tax liabilities. For more information on self-assessment tax returns and allowances, visit the HMRC website.