Self-Employed Taxi Driver Tax: A Step-by-Step Walkthrough

If you drive a taxi or a private hire vehicle (PHV) on your own account, you are self-employed for tax and you file a Self Assessment return every year. That is true on a rank, on radio work, and on an app. The route from your first fare to your first tax payment has seven steps and two forks, and both forks cost money if you take them by accident. Work through them in order.

Step 1 (day one): check that you are actually self-employed

You are self-employed if you keep the fares, pay for your own vehicle, insurance and licence, and decide when you work. Almost every badged driver is. Tax law has only two boxes, employed or self-employed, and self-employed taxi drivers sit firmly in the second one.

One point trips people up. Employment law has a third category, "worker", and the Supreme Court decided in Uber BV v Aslam [2021] UKSC 5 that drivers on that platform were workers for rights such as the minimum wage and holiday pay. Worker status does not exist in tax law. That judgment did not make app drivers employees for tax, and it does not put anyone on PAYE. You still register, still file, still pay Class 4 National Insurance. If you drive for an app, our pages on tax for Uber drivers and delivery drivers cover the platform side.

Step 2 (by 5 October): register for Self Assessment

The deadline is the 5 October following the end of your first tax year of trading. Start driving in June 2026 and your first tax year ends on 5 April 2027, so you must register by 5 October 2027. Register online at gov.uk and HMRC sends you a Unique Taxpayer Reference, a ten digit number you need for everything afterwards.

There is one threshold below which registration may not be needed. The trading allowance covers the first £1,000 of gross self-employed income in a tax year. Gross means takings before any costs. A driver working even part time clears £1,000 in a couple of weeks, so treat registration as certain rather than optional.

Above £1,000 you get a choice each year: deduct the £1,000 allowance or deduct your actual expenses. Never both. For a driver with fuel and insurance to pay, actual expenses win by a distance, so the allowance is really a rule for someone who drove for a fortnight and stopped.

Step 3 (every shift): log the takings

Your taxable income is every pound the driving brings in. That means card payments, app payments net of nothing (record the gross fare, then treat the platform's commission as an expense), account and contract work, tips, and cash.

Cash fares are the ones that go missing from records, and a missing record is the problem, not the cash. Write down each cash job on the day with the date and the amount, bank it in a pattern you can explain, and keep the paying-in slips. If HMRC ever asks how you arrived at your turnover figure, that daily log is the answer. A takings sheet with a line per shift and a weekly total is enough.

Keep the paperwork on the other side too: fuel receipts, the insurance schedule, garage invoices, the licence and plate renewal receipts, circuit rent statements, app earnings summaries. Records must be kept for at least five years after the 31 January filing deadline for that year.

Step 4 (before you claim anything): pick your vehicle cost method

This is the fork that costs the most money, and it is a one-way door. For each vehicle you choose between two methods.

Method A, simplified mileage. You claim a flat rate per business mile and claim nothing else for running the car. The rates are the Approved Mileage Allowance Payment (AMAP) rates: 55p for the first 10,000 business miles in the tax year, then 25p a mile, from 6 April 2026. For 2025/26 and earlier the first-10,000 rate was 45p, so any figure you read that still says 45p is describing a past year.

Method B, actual costs. You claim the real running costs, fuel, insurance, repairs, servicing, tyres, MOT, breakdown cover, and you claim capital allowances on the vehicle itself.

The rule that catches people: the choice is made per vehicle and it sticks for as long as that vehicle is used in the business. Once you have claimed mileage rates for a car, you cannot switch it to actual costs or capital allowances later. And you cannot use mileage rates at all on a vehicle you have already claimed capital allowances on. Change vehicle and you get a fresh choice for the new one.

Two more points on Method B. A car gets no Annual Investment Allowance and no first-year allowance; relief comes through the writing-down allowance by CO2 band. The main-rate writing-down allowance is 14% from 6 April 2026, down from 18% (Finance Act 2026 s.28). A van, by contrast, does qualify for the £1,000,000 Annual Investment Allowance at 100%. If you use the vehicle privately as well, you scale the claim down to the business share, both for running costs and for capital allowances.

What expenses can a taxi driver claim?

Two lists, because taxi expenses split by which method you picked in step 4.

Cost	Method A (mileage rate)	Method B (actual costs)
Fuel	Inside the 55p/25p rate, not claimable again	Claim in full (business share)
Insurance, including hire and reward cover	Inside the rate	Claim in full (business share)
Repairs, servicing, tyres, MOT, breakdown cover	Inside the rate	Claim in full (business share)
Buying the vehicle	No capital allowances, ever, on that vehicle	Capital allowances: car by CO2 band, van via the £1m Annual Investment Allowance
Driver and vehicle licence fees, plate fee, council testing fees	Claim	Claim
Circuit or radio rent, app commission, card machine fees	Claim	Claim
Vehicle cleaning and valeting	Claim	Claim
Mobile phone and data	Claim the business share	Claim the business share
Accountancy and bookkeeping fees, accounting software	Claim	Claim
Interest on a loan taken out to buy the vehicle	Claim the business share	Claim the business share
Meals while working, ordinary clothing, home-to-rank travel before your first job	Not allowable	Not allowable

Parking and tolls incurred on a job are allowable under both methods. Parking fines are not, under either.

Step 5 (after 5 April): work out the profit

Profit is takings minus allowable expenses. Here is a full year, computed both ways, so you can see how much the step 4 fork is worth.

Worked example: a private hire driver in Coventry, tax year 2026/27

Tomasz drives a private hire car on his own account. He bought the car outright for £9,000 in April 2026, uses it only for work (the family has a second car), and drove 24,000 business miles in the year. His figures for the year to 5 April 2027:

• Gross takings, fares plus tips, cash, card and app: £34,800
• Fuel: £6,100
• Hire and reward insurance: £2,400
• Repairs, servicing and tyres: £1,750
• Licence, plate and council testing fees: £560
• App commission and circuit rent: £3,900
• Phone, business share: £180
• Accountancy: £400

Costs that both methods allow. Licence and testing £560, commission and circuit rent £3,900, phone £180, accountancy £400. Total £5,040.

Method A, mileage rate. First 10,000 miles at 55p is £5,500. The remaining 14,000 miles at 25p is £3,500. Mileage claim £9,000. Add the £5,040 of other costs and total expenses are £14,040. Profit is £34,800 minus £14,040 = £20,760.

Method B, actual costs. Running costs are fuel £6,100 plus insurance £2,400 plus repairs £1,750 = £10,250. His car emits 50g/km or less, so it goes into the main pool at £9,000 and gets a writing-down allowance at 14% for 2026/27, which is £1,260 (the remaining £7,740 carries forward and gets relief in later years; a car above that CO2 band goes into the special-rate pool at 6% instead, giving only £540 in year one, which is enough to flip which method wins). Add the £5,040 and total expenses are £10,250 plus £1,260 plus £5,040 = £16,550. Profit is £34,800 minus £16,550 = £18,250.

Method B gives Tomasz £2,510 less taxable profit in year one, worth about £653 in tax and National Insurance at basic rate. He picks Method B, and that car is now locked to actual costs and capital allowances for as long as he uses it in the business.

Step 6: work out the tax and National Insurance

Two charges come out of the same profit figure, and for 2026/27 they are:

• Income tax. Personal allowance £12,570, then 20% up to £50,270, 40% up to £125,140, 45% above.
• Class 4 National Insurance. 6% on profit between £12,570 and £50,270, then 2% above £50,270. That 6% is the Class 4 main rate set for 2025/26, still current when this page was checked in August 2026.
• Class 2 National Insurance. Not a payable charge since 6 April 2024. Profit at or above the small profits threshold is treated as having paid it, so your state pension year still counts. Below that, you can pay voluntarily.

Taking Tomasz's £18,250 profit:

• Taxable after the personal allowance: £18,250 minus £12,570 = £5,680
• Income tax at 20%: £5,680 x 0.20 = £1,136.00
• Class 4 at 6% on the same £5,680: £5,680 x 0.06 = £340.80
• Class 2: nil
• Total due: £1,476.80

Had he taken Method A and declared £20,760, the same arithmetic gives £8,190 taxable, £1,638.00 income tax and £491.40 Class 4, a total of £2,129.40. The fork was worth £652.60 in year one alone.

Set aside roughly a quarter of your profit as you go, in a separate account, and the bill in January is an inconvenience rather than an emergency.

Step 7 (by 31 January): file and pay

The dates for a tax year ending 5 April:

Date	What is due
5 October after the tax year	Register for Self Assessment, first year only
31 October	Paper return, if you still file on paper
31 January	Online return, the balancing payment for the year, and the first payment on account for the next year
31 July	Second payment on account

Payments on account catch every driver in year two, and the January bill is the one that shocks. Where your liability for the year was over £1,000 and less than 80% was collected at source, you pay two interim instalments toward the next year, each 50% of the previous year's income tax plus Class 4. Tomasz owed £1,476.80 for 2026/27, so on 31 January 2028 he pays that £1,476.80 plus a first payment on account of £738.40, which is £2,215.20 in one go, then another £738.40 on 31 July 2028.

Miss the filing deadline and there is an automatic £100 penalty even if no tax is owed, with daily penalties after three months and further penalties at six and twelve. Late payment carries interest plus surcharges at 30 days, six months and twelve months.

Do MTD rules apply to taxi drivers?

Yes. Making Tax Digital for Income Tax (MTD for Income Tax, sometimes written MTD ITSA) replaces the once-a-year return with digital records and quarterly updates, and it is arriving by turnover band:

Qualifying income	You join from	Tested on
Over £50,000	6 April 2026	2024/25 return
Over £30,000	6 April 2027	2025/26 return
Over £20,000	6 April 2028	2026/27 return

The point most drivers get wrong: the test is gross qualifying income, not profit. It is your takings that count, before a single pound of fuel or commission comes off. Tomasz took £34,800 in fares in 2026/27 and made £18,250 of profit. It is the fares figure that decides, tested on the return for the year two years back, so a driver at that level joins on the £30,000 band. Rental income counts toward the same figure, so a driver with a let flat can be pulled in a band earlier.

What changes in practice. You must keep your records digitally in software that talks to HMRC, so a shoebox of receipts and a paper takings book stop being enough on their own. You send a summary of income and expenses every quarter, then a final declaration after the year end that replaces the old return. The quarterly updates are summaries, not four tax bills: payment dates do not change, and 31 January and 31 July still govern.

The practical move is to start recording digitally a year before your band bites, so the switch is a change of software and not a change of habit. Our walkthrough of Making Tax Digital for self-employment and rental income covers the mechanics.

The licence renewal tax check

Since 4 April 2022 in England and Wales, and 2 October 2023 in Scotland and Northern Ireland, renewing a taxi driver, private hire driver or operator licence means completing an HMRC tax check first. You do it through your Government Gateway account, HMRC issues a tax check code valid for 120 days, and you give that code to the licensing authority, which cannot process the renewal until it has verified it. Re-applying after a lapse of a year or more triggers it too; first-time applicants only confirm they have read HMRC's guidance. The council sees a pass or a fail, never your figures. Our page for taxi and private hire drivers goes into the check and what to have ready.

When VAT enters the picture

Fares are standard rated, but you only register for VAT once your own taxable turnover passes £90,000 in any rolling 12 months, and very few individual drivers get there. Whether an operator taking the booking must charge VAT on the full fare is a different and heavily litigated question, and it is covered on our page on VAT on taxi fares and private hire.

The five mistakes that cost drivers money

• Claiming mileage and fuel. The 55p rate already contains the fuel, the insurance and the repairs. Claiming both is a straightforward overclaim.
• Using last year's mileage rate. 45p applied to 2025/26 and earlier. From 6 April 2026 the first-10,000 rate is 55p, and using 45p on a 2026/27 return quietly costs you £1,000 of expenses over 10,000 miles.
• Paying a Class 2 bill that no longer exists. Class 2 stopped being payable on 6 April 2024.
• Forgetting the payment on account. Year two's January bill is roughly one and a half times year one's.
• Reading the MTD threshold as profit. It is turnover, and the gap between the two is where drivers get caught out by a year.

Get the first fork right, keep the takings log honest, and a driver's tax year is genuinely simple. If your figures are close to a threshold, whether that is the £30,000 MTD band, the £90,000 VAT line, or a vehicle change that reopens the method choice, that is the point at which an hour with an accountant pays for itself.