Taxi drivers must fill in a self employed tax return if they have worked as a taxi driver at anytime during the financial year. Self employed tax returns for 2008-09 have to be filed by 31st January 2010 to avoid the £100 late filing penalty with interest being charged on any tax not paid by this date.
The simplest solution to preparing the taxi driver accounts is to collect all the taxi receipts and expenses together, hand them over to a taxi accountant who will prepare the self employed tax return and might charge £150 to £500 for the privilege, that is taxing. Taxi accounting does not have to be taxing. Taxi drivers and cabbies can prepare the taxi accounts and self employed tax return.
Taxi driver notes in preparing the taxi driver accounts
Taxi drivers can claim as an alternative to vehicle running costs mileage allowances of 45p for the first 10,000 miles and 25p per mile thereafter. You may not claim mileage allowance and vehicle running costs. Should you choose to claim the mileage allowance then keep good records of mileage covered, purpose of journey. With high fuel costs and the mileage allowances set in 2001 vehicle running costs tend to be higher when the vehicle cost is high and mileage allowances better when the vehicle cost is lower.
Taxi Capital Allowances
If you bought a vehicle in 2007-08 and used it as a mini cab or taxi a first year writing down tax allowance of 25% of the cost of the taxi, restricted to £3,000 for vehicles costing over £12,000. can be claimed as a tax relief. On vehicles purchased in previous tax years you can claim 25% writing down allowance on the balance not yet claimed. If the vehicle is sold during the financial year the tax allowance is restricted to any loss made on resale and any profit made over the written down value is taxable as a balancing charge. First year allowance in the current tax year 2007-08 on fixed assets other than vehicles is 50%.
Taxis bought on Hire Purchase
Claim capital allowances on the original cost of the vehicle, interest and other charges count as business expenses and go in the tax return instead of depreciation which if deducted from taxi income is disallowed as a business expense since depreciation is a personal choice not a taxable expense.
Taxi Running Costs
When completing the self employed tax return taxi drivers should enter fuel costs in cost of sales not motoring expenses. Do not claim fuel expenses when you are on holiday, the revenue will check should they inquire into the taxi driver self employed tax return. Taxi running costs also include repairs, servicing and parts including tyres, road tax, taxi insurance and AA/ RAC membership. Include radio hire and taxi office costs in general administrative expenses.
If you run your taxi business from home you can claim a proportion of household expenses as business expenses. Household expenses are likely to be disallowed unless they are either specific to the business or a specific area of your home is devoted entirely to your business. The HMRC rules allow £2 per week household expenses to be claimed when the home is used without further evidence.
You can claim expenses for partners who work for your taxi business and payments up to £105 would not attract income tax or national insurance however any payments claimed must be real payments for real work done. HMRC naturally adopt a strict view on expenses claimed for partner work as it is an area some people might use to reduce the tax liability.
Enter all business expenses in a named expense box on the self employed tax return. Avoid entries in Other Expenses if possible as any significant amounts in this box may give rise to an Revenue enquiry into the self employed tax return.
The best method of ensuring the taxi drivers tax bill is as low as possible is to meticulously maintain good records of all taxi receipts and taxi expenses and mileage covered offering the opportunity to compare vehicle running costs against mileage allowances and choose the most tax efficient option. General if the taxi cab capital allowances are high, vehicle running costs will be the best option and if taxi cab allowances are low then mileage allowances may well legally increase the costs you can claim and save you money.
The author, Terry Cartwright, designs accounting spreadsheets including specific taxi driver accounts, Cabsmart, based upon excel spreadsheets that automatically produces an excel copy of the taxi driver self employed tax return from basic receipts and expenses for just £20. For further information visit: our taxi accounts page