If you’ve just started with Uber or one of the other emerging e-hailing apps like Free Now, Gett, Bolt, and Adison Lee, you’ll need to declare your income and file for income taxes. 

Find out how to file income tax as a new taxi driver in this guide and learn how to make running your business more efficient. In this article, you’ll find:

  • How to file income taxes with HMRC: a step-by-step guide
  • How to be ready for the future of income tax: Making Tax Digital
  • How to run file taxes more effectively with Countingup

Whether you’ve just started taxiing as a side hustle or are a more established driver, read on to find out how to file your income as a taxi driver. We’ll also let you know how Countingup can help you meet your accounting challenges while operating.

How to file income taxes with HMRC

Any individual with income that isn’t taxed at source will need to fill out a tax return. As you’ve just started taxiing, you’ll need to declare this new income (however little) to HMRC. If you’ve not yet gone full time with your taxi business and still have another job, this will affect your tax calculations. This is because part of your overall tax bill will be automatically deducted from income (shown as PAYE on your payslip). We’ll pick up on this more below.

Step 1: Register as a sole trader

Filing your income tax with HMRC is a fairly straightforward process. As a taxi driver, you’ll need to register as a sole trader beforehand. This means your new business is legally set up and you’ll be able to continue the process for filing income taxes outlined below. Find out more in our article How to register as a sole trader.

After registering, you’ll receive a special identifying code called a Unique Taxpayer Reference that works just like your National Insurance number. When dealing with HMRC, it’s essential you use these references when asked so you can ensure any bill you paid is logged as yours.

Step 2: Track your income and expenses across time

To file income from your business, you’ll need to keep a record of all business transactions within a set timeframe known as the ‘financial year’. This timeframe is the same for all businesses: starting from 6th April and lasting until 5th April the following year.

This will include customers’ payments, expense receipts for fuel, MOT and repair invoices, car insurance and more. Generally speaking, if it’s a cost related to your business (as income or expenditure), you should record it. This can be very demanding for new business owners but modern accounting software like Countingup can help make this process simpler and less time-consuming. Find out more below.

Therefore, to work out your income and tax, take your revenue and deduct your expenses. This should give you a net profit figure for your business which you keep and pay income tax on. Your revenue is the total amount of money you’ve made from your business across this period, while expenses are costs you’ve had to pay for essential business goods and services.

Step 3: File your Self Assessment tax return

HMRC uses your business’ net profit figure to calculate your income tax and national insurance contributions. Declare your self-employed income on HMRC’s online Self Assessment portal here and use the records you’ve kept on your business’ finances to evidence income and expenses you’ve encountered.

It’s worth noting that you don’t have to pay income tax on the first £1,000 you’ve made from self-employment. This is called your ‘trading allowance’ and goes on top of the personal allowance figure, currently placed at £12,570. Therefore, if your income is below this total figure, you won’t have to pay any income tax. If it’s above, you’ll need to pay income tax at the rates listed here.

Class 2 national insurance is paid on annual income over £6,515 up to a threshold of £9,569, at which point you pay class 4. Class 4 contributions have an upper limit of £50,270. Therefore, it’s important to check if your total income may take you into or over these limits so you can pay your taxes correctly. 

Income tax brackets work slightly differently if you live and earn in Scotland. Therefore, make sure you can pay your income tax bill by planning ahead. HMRC has a useful online tool for self-employed earners to help them plan their tax costs available here.

Step 4: Paying your taxes before the deadline

Tax returns for your business must be filed and paid (at least in part) to HMRC online before the 31st of January after the tax year has ended. For example, tax returns for the 2021-2022 tax year by 31st January 2023.

HMRC requires that your payment arrives with them by this deadline so make sure any money transfer method you use arrives in time.

How to be ready for the future of income tax: Making Tax Digital

HMRC is launching an initiative called Making Tax Digital (MTD). This is a new method for business accounting and a new era for tax collection wherein businesses can record and manage their finances using completely integrated digital accounting software like Countingup. As a taxi driver for apps like Uber and others, this should fit into your existing work, and can help simplify your accounting overall.

Already, HMRC has made MTD a requirement for VAT returns. If your business is registered for VAT, the deadline for you to sign up for MTD for VAT is April 2022. Similarly, the deadline is also set for MTD for Income tax: self-employed business owners earning over £10,000 a year will need to register for MTD for Income Tax by April 6th 2023.

Registering for Making Tax Digital is relatively straightforward, but you will need to:

  • Get MTD-compliant accounting software like Countingup (which is free)
  • Use your registration information when you became a sole trader
  • Declare some standard details about your business
  • Sign-up online

How to file your taxes more effectively with Countingup

When you sign up for a Countingup business current account, you get free MTD-compliant accounting software that allows you to manage your business’ finances and tax returns with ease.

Countingup automates the time-consuming aspects of bookkeeping and tax planning so you can focus on running your business. You also receive real-time insights into your profit and loss, tax estimates, and the ability to create invoices in seconds.

These features and more will have you well prepared for filing income tax returns both now and in the MTD era when it comes.

Gain complete confidence in your finances and be ready for the next step in the business world. Find out more here and sign up for free today.