Taxi Driver Tax Return Guide 2026

Tax Return guide for self-employed Taxi Drivers

We can prepare your Tax Return online for just £130

If you drive a taxi or private hire vehicle and you're not employed by a firm on PAYE, HMRC treats you as self-employed, and that means you have to register for Self Assessment and file a tax return every year — even if you also drive part-time or alongside another job.

This guide covers what taxi driver tax actually involves: what counts as income, which expenses you can claim, how capital allowances work for your vehicle, and what's changing with Making Tax Digital.

What is "taxi tax" for a self-employed driver?

There's no separate "taxi tax" — as a self-employed driver you pay the same Income Tax and National Insurance as any other sole trader, calculated on your profit (fares and tips received, minus allowable running costs), not your turnover. You report this once a year through Self Assessment, with the deadline for online returns falling on 31 January following the end of the tax year.

Most taxi drivers will pay:

• Income Tax on profits above your Personal Allowance (£12,570 for most people)
• Class 4 National Insurance on profits above the lower profits limit
• Class 2 National Insurance if profits are below the small profits threshold and you choose to pay voluntarily to protect your State Pension record

(Class 2 NIC is no longer compulsory for most self-employed people with profits above the small profits threshold — you're treated as having paid it automatically.)

Keeping records

Keep a running log of every fare, tip, and expense — daily if you can manage it. HMRC can ask to see records going back several years, and drivers who don't keep evidence of costs are the ones most likely to overpay tax, because they can't back up what they claim.

If you use your vehicle for personal journeys as well as taxi work, you need to apportion costs. For example, if 20% of your mileage is personal, reduce your claimable vehicle running costs by 20%

Allowable Expenses for Taxi Drivers

You can claim tax relief on costs that are wholly and exclusively for your taxi business, including:

• Fuel (petrol, diesel or electricity)
• Servicing, repairs and general running costs
• Road tax and MOT
• Cleaning and valeting
• Interest on a loan or hire purchase agreement taken out to buy the vehicle
• Taxi licence and other registration/badge fees
• Vehicle insurance and breakdown cover (AA/RAC)
• Radio hire or dispatch/app fees
• Accountancy fees
• Advertising
• Phone costs for business use
• Parking and toll charges
• A proportion of home costs if you do admin from home

Two ways to claim vehicle costs

You can only use one of these methods for a given vehicle — not both:

1. Simplified mileage rate Claim a flat rate per business mile instead of tracking actual running costs:

• 45p per mile for the first 10,000 business miles in the tax year
• 25p per mile after that

This flat rate already builds in an allowance for wear and depreciation, so you can't also claim capital allowances on the same vehicle. You can still separately claim loan interest, parking and tolls on top of the mileage rate.

2. Actual costs plus capital allowances Claim your real running costs (fuel, servicing, insurance, etc.) as expenses, then claim capital allowances on the vehicle itself to get tax relief on its purchase cost over time, similar to depreciation.

For most drivers doing high annual mileage, actual costs plus capital allowances often works out better value than the flat mileage rate — it's worth calculating both ways.

Capital allowances for taxi drivers (2025/26 rates)

Cars can't be claimed under the Annual Investment Allowance — instead, they go into one of two "pools" depending on CO2 emissions, and you claim a Writing Down Allowance (WDA) on the balance each year:

Traditional Hackney Carriages ("London Black Cab"–style vehicles) can also qualify for enhanced allowances in some circumstances — check with your accountant if this applies to your vehicle.

If you use the car partly for private journeys, your capital allowances claim is reduced by the private-use percentage, in the same way as your running costs.

You can check a car's CO2 figure on its V5C log book or via the gov.uk vehicle emissions checker.

Note: the main pool WDA rate is dropping from 18% to 14% from 6 April 2026 for Income Tax purposes, so pool balances will take slightly longer to fully relieve going forward — this doesn't affect the mileage rate method.

Worked example: taxi driver tax return

A rough illustration for a full-time self-employed driver:

• Fares and tips for the year: £38,000
• Fuel, servicing, insurance, licence fees, phone: £9,500
• Capital allowance claimed on vehicle (main pool, 18%): £2,200
• Taxable profit: £38,000 − £9,500 − £2,200 = £26,300
• Less Personal Allowance (£12,570): £13,730 taxable
• Income Tax at 20%: £2,746
• Class 4 NIC (on profits above the lower profits limit, at the applicable rate): a further amount on top

This is illustrative only — your actual figures depend on your income, expenses, and personal circumstances. It's worth running your own numbers or having an accountant check them, particularly around the private-use apportionment and which vehicle cost method suits you best.

Making Tax Digital for Income Tax — what's changing

If you're a self-employed taxi driver, this is the biggest change to how you report tax since Self Assessment itself was introduced:

• From April 2026: mandatory for sole traders and landlords with gross income (turnover, before expenses) over £50,000
• From April 2027: threshold drops to £30,000
• From April 2028: threshold drops to £20,000

Once you're brought into MTD for Income Tax, instead of one annual Self Assessment return you'll submit quarterly digital updates of income and expenses using approved software, plus a final declaration by 31 January. Because the threshold is based on gross fares (turnover), not profit, a full-time driver can be pulled into MTD even with modest actual profit after expenses — it's worth checking your gross income now rather than waiting for a letter from HMRC, as it remains your responsibility to check even if one doesn't arrive.