Taxi drivers have two options when it comes to the ownership of the vehicle they use for their work – it’s either a personal vehicle that they also use for work, or it’s dedicated to business use.
Which is best for tax purposes?
As is always the way, there’s no simple answer. Yes, I know – I’m as sick of saying it as you are of hearing it.
The fact is, whichever route you go down has its pros and cons when it comes to claiming relief on business expenses.
I’ll set those out as clearly as I can and then, if you want to dig into how these options might apply to your particular circumstances, get on the phone and we’ll talk it through.
Using your personal car as a taxi
Let’s say you use your own car – the same one you take the kids to school in or use for the weekly shopping.
In this case, you can claim tax relief for all those miles you cover on the job. You just need to keep a record of how many miles you drive – either totting it up in a notebook or, if you live in the 21st century, using one of the many smartphone apps designed for this purpose.
In 2020/21, you can claim 45p per mile for the first 10,000 miles and then 25p per mile for anything over that.
The downside is that under this model, you can’t claim relief for fuel expenses, road tax, the cost of your MOT or repairs.
The taxi is a dedicated business vehicle
First, a note: if you’re a sole trader, rather than operating through a limited company, then you and the business are inseparable and the car will always technically belong to you.
Nonetheless, with a dedicated business vehicle (whether owned, leased or hired) you can still claim relief on many more items associated with the job if you account for it on an ‘actual costs’ basis.
That includes:
- Lease/hire costs
- Fuel
- Insurance
- Breakdown cover
- MOT
- Car tax
- Cleaning
- Servicing and repairs
Now, if you think recording mileage is a bit of a chore, you’ll need to be even more disciplined in this case. Keep receipts, invoices and records for absolutely everything.
The easiest thing to do is to use cloud accounting software on your smartphone. It makes it simple to snap photos of any paperwork and have it automatically converted to a digital record in the app.
That means you won’t have to hoard scraps and slips of paper in the office at home and, being selfish, it also means I won’t have to deal with them at year end.
Also bear in mind that if you do use the work vehicle for personal use you’ll need to make a reasonable estimate of how much – say, 10% – and make sure you claim tax relief only on the proportion of use that’s definitely related to the business.
The easiest thing, obviously, is to keep that distinction really clear by keeping a second car for personal use. That also has the benefit of meaning you won’t feel like you’re still at work next time you take a run down to the coast on your day off.
Get in touch to talk about business expenses for taxi drivers.