Your vehicle is your biggest cost and your biggest tax decision. Here is how to get it right.
The single decision that will define your tax bill as a self-employed taxi or private-hire driver is not which receipts to keep. It is whether you claim the HMRC simplified mileage rate or your actual vehicle running costs, because you cannot do both, and swapping between them after the fact is one of the most common errors HMRC sees in this trade.
Unlike many other trades, you have no Construction Industry Scheme deductions taken at source, no employer drip-feeding you a payslip, and usually no VAT to charge your passengers. Your income arrives fare by fare, sometimes via a dispatch app that takes its commission off the top, and your job at the end of each tax year is to show HMRC the full picture. This guide walks through exactly how to do that.
As a sole trader, you pay Income Tax on your profit (income minus allowable expenses), not on your gross fares. You also pay Class 4 National Insurance Contributions (NICs) on that same profit, and Class 2 NICs are now collected through Self Assessment rather than as a separate flat weekly charge.
For 2025/26 the headline rates are:
| Threshold | Rate |
|---|---|
| Up to GBP 12,570 (personal allowance) | 0% Income Tax |
| GBP 12,571 to GBP 50,270 | 20% Income Tax |
| Above GBP 50,270 | 40% Income Tax |
| Profit GBP 12,570 to GBP 50,270 | 6% Class 4 NIC |
| Profit above GBP 50,270 | 2% Class 4 NIC |
You file a Self Assessment tax return each year (31 January deadline for online filing). If you also have PAYE income from a second job or a pension, it is worth using HMRC's tax code checker to make sure you are not being taxed twice on the same allowance.
This is where your tax bill is won or lost. The expenses below are the ones that are genuinely specific to your trade; they are not a generic list but the costs that appear in a real taxi driver's accounts.
| Expense | Notes |
|---|---|
| Fuel or mileage | Claim 45p/mile (first 10,000 miles), 25p/mile thereafter, OR actual fuel costs if using the actual-costs method |
| Vehicle insurance | The proportion used for business if the car is also used privately |
| Servicing and repairs | Tyres, oil changes, brake pads; again, business-use proportion if not 100% trade |
| MOT fees | Allowable in full if the vehicle is used exclusively for the trade |
| Private hire licence and vehicle licensing fees | TfL, local council or combined authority licence fees are fully deductible |
| Radio or dispatch fee / app commission | The percentage Uber, Bolt, or your radio circuit takes from each fare |
| Cleaning and valeting | Keeping the vehicle presentable for passengers is a legitimate trade cost |
| Phone and data | The business proportion of your mobile contract; many drivers use their phone almost entirely for navigation and dispatch |
| Accountancy and Self Assessment fees | Fully deductible |
Notice that this list is built around your vehicle and your licence, not around a workshop or a client's premises. If you drive for an app-based platform, the commission line alone can be worth several thousand pounds of deductions each year and is frequently under-claimed by drivers who only record their net payout rather than tracking gross fares and commission separately.
This is the most consequential tax choice you will make as a taxi driver, and HMRC's rules are firm. Use the mileage calculator to model both options before you commit.
Simplified mileage (45p/mile): Simple to calculate, needs only a mileage log. Covers everything: fuel, oil, tyres, servicing, insurance, depreciation. Once chosen for a vehicle, you cannot switch to actual costs for that vehicle.
Actual costs: You claim real expenditure on fuel, insurance, servicing, MOT, repairs, and use capital allowances (via the Annual Investment Allowance or writing-down allowances) for the vehicle's purchase cost. This produces a bigger deduction for low-mileage drivers with expensive, fuel-heavy vehicles, but requires more record-keeping.
For high-mileage drivers covering 25,000 or more miles a year, the 45p/mile rate often wins. For a driver who bought a diesel cab outright for GBP 18,000 and covers 12,000 miles, actual costs may be better. Model it before you file.
The mileage rate looks simple, but for a taxi driver doing 28,000 miles the arithmetic is worth doing properly before you lock yourself in.
Passenger transport in taxis and private-hire vehicles is, in most cases, VAT-exempt, which means you do not charge VAT on fares and cannot reclaim VAT on expenses. However, the VAT registration threshold of GBP 90,000 still matters because if your taxable turnover (which includes any non-exempt income) crosses that line, you must register.
For solo drivers working purely on fares, turnover of GBP 90,000 is a high bar. The complexity arises with commission models. If a platform pays you a gross fare and then invoices you separately for commission, your "turnover" for VAT purposes is the gross fare, not the net amount after commission. Get this wrong and you may unknowingly approach the threshold. If your fares are consistently above GBP 7,500 per month, keep an eye on the running total.
Sophia drives for a private-hire operator and turns over GBP 32,000 in 2025/26, covering 28,000 business miles. She chooses the simplified mileage rate.
Income: GBP 32,000
Allowable expenses:
| Item | Amount |
|---|---|
| Mileage (10,000 miles at 45p) | GBP 4,500 |
| Mileage (18,000 miles at 25p) | GBP 4,500 |
| App commission (15% of fares) | GBP 4,800 |
| Private hire licence fee | GBP 320 |
| Phone and data (80% business) | GBP 480 |
| Valeting and cleaning | GBP 360 |
| Total expenses | GBP 14,960 |
Taxable profit: GBP 32,000 minus GBP 14,960 = GBP 17,040
Income Tax: GBP 17,040 minus GBP 12,570 personal allowance = GBP 4,470 at 20% = GBP 894
Class 4 NIC: GBP 4,470 at 6% = GBP 268
Approximate total tax bill: GBP 1,162
Use the sole trader tax calculator to run your own numbers. Sophia's mileage claim alone saves her GBP 9,000 in taxable profit; without it, her bill would have been almost three times higher.
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) replaces the annual Self Assessment tax return with quarterly digital submissions for eligible sole traders. If your self-employment income is above GBP 50,000, you must comply from April 2026. If it is above GBP 30,000, the date is April 2027.
For most taxi drivers this means quarterly updates to HMRC via MTD-compatible software, with a final end-of-year declaration. The practical upside is that you stop drowning in a year's worth of receipts each January; the records build up quarterly. The downside is that you must use compliant software from day one.
Read the full breakdown of what changes and when in our MTD for sole traders guide. TapTax is built for exactly this workflow: log fares, categorise expenses, and send quarterly updates without needing an accountant for every submission.
Claiming mileage AND fuel. This is the biggest error in the trade. If you have chosen the 45p/mile simplified rate, it already covers fuel, oil, tyres, servicing and depreciation. Claiming fuel receipts on top of that is double-counting and HMRC will correct it on enquiry. Choose one method and stick to it.
Recording net income instead of gross fares. If an app pays you GBP 850 after taking GBP 150 commission, your income is GBP 1,000 and your expense is GBP 150. Recording only GBP 850 understates both income and expenses, which distorts your profit figure and can cause problems if HMRC cross-references platform data.
Forgetting licence fees. Private hire and vehicle licensing fees are fully allowable, but many drivers miss them because they pay annually and do not store the receipt with the monthly running costs.
Not keeping a mileage log. HMRC can and does ask for evidence of business mileage. A simple daily log (date, start point, destination, miles) is sufficient and apps make it easy. Without it, your entire mileage claim is vulnerable.
Mixing up personal and business mileage. If your cab doubles as the family car, only the business proportion of actual costs (or the business miles in the mileage method) is deductible. Be honest about the split; HMRC guidance is clear on this.
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