Mytaxio.com are working with the ClickTo.Tax team to provide guidance on key expenses to claim when filing your Self Assessment tax return to help reduce tax.
HMRC have made it clear that expenses can only be claimed “wholly and exclusively” for business purposes. In short, this means only those expenses you’ve 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, we will detail the key expenses available to you later on. Claiming expenses is a useful way to reduce tax. What this could look like is below:
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 they are already claiming these for you. However, it’s good to know what these are and you can then have a conversation with your accountant should you have any questions. Remember, your tax return is your responsibility and not your accountant.
It’s 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. You may want to use the free Weekly Record Sheet available at Clickto.tax
Please note, the guidance in this article is not exhaustive and shouldn’t be used as an alternative to seeking professional advice.
So, what are the key expenses?
Taxi running expenses
These are the expenses for the day-to-day running of your taxi during the tax year.
If you drive a Private Hire Vehicle then you can use actual costs or the simplified method to calculate this. However, generally, if you drive a Hackney carriage then you can only use actual costs.
If you have used the simplified method previously for your existing taxi then you must continue to use the same method until you change your taxi. You can clarify this by reviewing your previous tax returns.
What’s the difference between the actual costs or the simplified method?
The simplified method would pay a flat rate based on the number of business miles in the tax year, it takes into account things like fuel, servicing, repairs and vehicle insurance. Further guidance on this can be found on the GOV.UK website by (clicking here), it also contains a link to a useful tool (simplified expenses checker) to establish which method will save you more money.
It’s worth noting, if you do not use the simplified method but the actual costs method for this then it’s a requirement you retain appropriate evidence (e.g. invoice/receipt) for everything you claim to show to HMRC in the event of an enquiry.
Under the actual costs method you could claim:
- Vehicle hire or lease
- Vehicle insurance
- Repairs/maintenance (e.g. tyres, bulbs etc.)
- Vehicle tax
- Breakdown cover (e.g. AA/RAC)
Taxi licence expenses
This 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’ve 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 includes the following during the tax year:
Charges on your business bank account (this will need to be one specifically for your taxi driving income and expenses)
Interest and charges for any lending (i.e. loan, overdraft, credit card or hire purchase agreement) used to buy the vehicle you have used as the taxi.
You can only claim a maximum of £500. 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 purchased 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 be 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.
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.
Please note 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. However, if it is used also for personal use then it is important the figure you provide represents the business use. You will need to retain appropriate evidence (e.g. itemised bill) of this claim in all cases to show to HMRC in the event of an enquiry.
If you need to work out the business use:
What you should in theory do is go through one or two sample months of bills each year and highlight your business use vs personal and use that as a basis of what percentage of your total bill to claim as a business expense.
In reality we tend to be a bit more pragmatic and suggest that if you use your mobile heavily for business and just a bit personally then to claim perhaps 80% of the total costs for business would be fair and justifiable. However, if you use it quite evenly for business and personal, then we would suggest claiming perhaps 50%.
What you need to remember is that you might have to justify this percentage to HMRC in the event of an enquiry, so retain a note of your workings and lean on the side of caution when it comes to what percentage to claim.