The simplest solution to preparing the taxi driver accounts is to collect all the taxi receipts and expenses together, hand them over to an accountant who will prepare your self assessment tax return and might charge between 150 to 450 pounds for the privilege. That is taxing. Taxi driver accounts does not have to be that taxing. You can prepare your taxi driver accounts and self assessment tax return yourself but do something.

These taxi driver notes in preparing the taxi driver accounts and completing the self assessment tax return are to assist that process.

Mileage Allowances

Taxi drivers can claim as an alternative to vehicle running costs mileage allowances of 40p for the first 10,000 miles and 25p per mile thereafter. You may not claim mileage allowance and vehicle running costs. Should you choose to claim the mileage allowance then keep good records of mileage covered, purpose of journey.

Taxi Capital Allowances

If you bought a vehicle in the financial year 2007-08 and used the vehicle as a taxi you can claim a first year writing down tax allowance of 25% of the cost of the taxi, restricted to 3,000 pounds for vehicles costing over 12,000 pounds. On vehicles purchased in previous tax years you can claim 25% writing down allowance on the balance not yet claimed. Many taxis are bought and sold each year and where a taxi is sold the capital tax allowance that can be claimed is the difference between the written down value for tax purposes and the amount of sale proceeds. First year allowance on non vehicle assets in the current tax year 2007-08 is 50% for small businesses.

Taxis bought on Hire Purchase

Claim capital allowances on the original cost of the vehicle, interest and other charges count as business expenses and go in the self assessment tax return box 3.61 Other Finance Charges

Taxi Running Costs

When completing the self assessment tax return taxi drivers should enter fuel costs in box 3.46 cost of sales not motoring expenses. A standard check carried out by any competent inland revenue inspector enquiring into a self assessment tax return would be to check when the taxi driver was on holiday and examine if fuel receipts had been included for this period. Not many tax returns are enquired into as the system is based upon trust but taxi drivers should ensure their accounts do not contain this fundamental tax fiddle. Taxi running costs also include repairs, servicing and parts including tyres, road tax, taxi insurance and AA/RAC membership. Taxi administrative costs and expense items such as hiring the radio should be entered under general administration expenditure.

Household expenses

If you run your taxi business from home you can claim a proportion of household expenses as business expenses in the taxi accounts. Household expenses are likely to be disallowed unless they are either specific to the business or a specific area of your home is devoted entirely to your taxi business. Using part of a room part time would not be sufficient to include the household expenses in the taxi driver accounts.

Spouse Costs

You can claim expenses for partners who work for your taxi business and payments up to 100 pounds per week would not attract income tax or national insurance however any payments claimed in the taxi driver accounts must be real payments for real work done. As the claiming of a partner wages as a valid business expense is an area potentially open to abuse the Inland Revenue naturally take a strict view on such claims. Care is required to justify the partner as an expense.

Other Expenses

Enter all business expenses in a named expense box on the self assessment tax return. Avoid entries in box 3.63 Other Expenses if possible as any significant amounts in this box may give rise to an Revenue enquiry into the self assessment tax return.

The better and more detailed a taxi driver keeps records of incoem and expenditure throughout the year offers the best chance to pay the least taxxes at the end of that year. This is because with meticulous records every self employed taxi driver can then do the calculation of whether to claim mileage allowances ot vehicle running costs. Without good records the most tax efficient option cannot be made. The decision to claim mileage allowance or taxi running costs can and often does change during the financial year. In general when a more expensive taxi cab is purchased then the capital alloweance of 3,000 pounds will often outweigh the potential mileage allowance although if the vehicle is low value the mileage allowance might be the best option and a method of saving valuable tax pounds which you are entitled to. The best taxi accounting software will automate the comparison of taxi mileage allowances with taxi running costs doing the taxi accountants work for you.

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A fixed asset is typically a piece of kit purchased by a business that will be used by that business to generate a profit over a period of time, perhaps more than one year, as opposed to an item that is consumed within the financial year. Items in the category of fixed assets may be plant and machinery, fixtures and fittings, computers and vehicles.

For most fixed assets the capital tax allowance consists of an enhanced first year allowance in the year of purchase and writing down allowance in subsequent years. This type of tax allowance spreads the allowance of the amount spent over the life of the asset rather than that item being expensed in full in the year the purchase was made.

For small businesses the first year allowance is currently 50%, 2007-08 and in subsequent years the writing down allowance is 25% of the balance. Special rules apply to vehicles and of particular interest when preparing the taxi driver accounts. These special rules certainly affect taxi drivers many of whom will find they are not eligible to claim the 50% first year allowance on their taxi.

Vehicles, including taxis are generally excluded from the 50% first year allowance and may not be claimed in the taxi driver accounts. In addition the 25% writing down allowance is restricted to a maximum of 3,000 pounds p.a. The writing down allowance continues until the value of the vehicle is written off for tax purposes or is sold.

When a vehicle is sold if the vehicle is sold at a price below the written down value for tax purposes then an additional capital tax allowance can be claimed in the taxi driver accounts. The additional tax allowance is equal to the difference between the price at which the vehicle was sold and the net written down value for tax purposes. When a vehicle is sold at a price above the net written down value for tax purposes there is a deduction in the capital allowances which is called a balancing charge and is equal to the sales value less the written down value for tax purposes.

Commercial vehicles are treated differently to cars. First year allowances can be claimed against the purchase price of vans that are deemed to be commercial vehicles. The Inland Revenue website has a list of vans it deems to be a commercial vehicle and the make and model of any van thought by the owner to be a commercial vehicle should check that vehicle against the list when claiming a first year allowance.

The writing down allowance on commercial vehicles is not restricted to 3,000 pounds. Capital tax allowances on commercial vehicles is then the same as a typical piece of plant and machinery whereby a 50% first year allowance can be claimed in the first year with a 25% writing down allowance in subsequent years.

The capital allowances act 2001 makes a distinction between cars and qualifying hire cars. Cars are subject to the restrictions on capital tax allowances applied to vehicles while qualifying hire cars are not subject to these restrictions in a similar way to which qualifying vans, commercial vehicles are treated.

The definition of what constitutes a qualifying hire car as opposed to a car is crucial to taxi drivers when the taxi driver accounts are being prepared either by the taxi driver or the taxi accountant. Simply using a car solely as a taxi is not sufficient to avoid the capital allowance restrictions. Using a vehicle which is deemed to be a qualifying hire vehicle is sufficient to allow a first year allowance and unrestricted writing down allowances to be claimed in the taxi accounts

To comply with the definition of a qualifying hire car the vehicle must be of a type that is not commonly used as a private vehicle and would also be unsuitable for use as a private vehicle. Hackney carriages, black cabs and limousines fall into the category of a qualifying hire car and taxi drivers using these types of vehicle may claim the 50% first year allowance and the 25% writing down capital allowance in subsequent years in the taxi driver accounts.

Other vehicles used as taxis would not receive the first year allowance but would be subject to writing down allowance of 25% of the original cost in the first year and a further 25% in succeeding years all subject to a maximum of 3,000 pounds per vehicle per annum. In addition when preparing the taxi driver accounts taxi drivers should note that if the taxi is also used for personal use then a further deduction in tax allowances is applicable according to the percentage that the taxi is used for personal business.

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