How tax works for taxi, private hire and app drivers
Most taxi and private hire drivers in the UK are self-employed sole traders. That is true whether you own a black cab, rent a licensed private hire car, or take jobs through Uber, Bolt or another app. You pay Income Tax and Class 4 National Insurance on your profit through Self Assessment, and nobody deducts tax from your takings before they reach you.
Four things make driving different from most self-employed work:
- Your vehicle is your biggest cost, and the way you claim for it (mileage rate or actual costs) is a choice you are largely locked into for as long as you keep that vehicle.
- HMRC already sees your app earnings. Digital platforms report driver income to HMRC every year.
- Your licence depends on your tax registration. Renewing a taxi or private hire licence requires an HMRC tax check.
- VAT depends on how your operator contracts with passengers, not just on how much you earn.
Worked example: a private hire driver in 2026/27
Sam drives a standard saloon licensed for private hire and takes most jobs through an app. The app acts as Sam's booking agent, so the full fares are Sam's income and the app's service fee is an expense. Sam uses the mileage rate for the car and drives 30,000 business miles in the year.
| Item | Amount |
|---|---|
| Fares received | £60,000 |
| Less app service fees | (£15,000) |
| Less mileage: 10,000 miles at 55p | (£5,500) |
| Less mileage: 20,000 miles at 25p | (£5,000) |
| Less licence renewal, DBS check and medical | (£500) |
| Less business share of phone and data | (£400) |
| Less parking, tolls and congestion charges | (£600) |
| Taxable profit | £33,000 |
Income Tax: £33,000 minus the £12,570 personal allowance leaves £20,430, taxed at 20% = £4,086.00.
Class 4 National Insurance: 6% of the profit between £12,570 and £33,000 (£20,430) = £1,225.80. Because profit is above £7,105, Class 2 contributions are treated as paid, so Sam's State Pension record is protected at no cost.
Total due for the year: £5,311.80, or roughly £443 a month to put aside. Sam's turnover of £60,000 is also above the £50,000 Making Tax Digital threshold, which is tested on income before expenses, not on profit. If you live in Scotland, Scottish Income Tax bands apply instead, but National Insurance is the same.
Should a driver use a limited company? Rarely. A company cannot use the mileage rate at all (it is only for sole traders and partnerships), a car the company owns and you use privately creates a benefit in kind, and the running costs of a company usually outweigh any saving at this level of profit. Our sole trader vs limited company calculator shows the numbers for your own figures.
Mileage rate or actual costs: the decision that sticks
For 2026/27 the simplified expenses rate for cars and goods vehicles rose to 55p a mile for the first 10,000 business miles, then 25p a mile (it was 45p up to 5 April 2026). The rate covers buying, running and maintaining the vehicle: fuel, servicing, repairs, insurance, road tax, MOT and depreciation. You can still claim tolls, congestion charges and parking on top.
The rules drivers most often get wrong:
- Black cabs cannot use it. HMRC excludes cars designed for commercial use, naming black cabs and hackney carriages. Private hire drivers in an ordinary car can use it.
- You cannot switch once you have claimed capital allowances. If capital allowances have ever been claimed on the vehicle, the mileage rate is not available for it.
- Once you start on mileage, you stay on mileage for as long as that vehicle is in the business. You can only change method when you replace the vehicle.
- Only business miles count. Keep a log as you go. The rate only applies to journeys made wholly for the business, not private trips or journeys with a mixed purpose.
The alternative is to claim the business share of actual running costs plus capital allowances on the vehicle. For an ordinary car, a new zero-emission car bought by 5 April 2027 can qualify for a 100% first-year allowance; otherwise cars go into the main pool at 14% a year (from April 2026, previously 18%) if they emit 50g/km or less, or the special rate pool at 6% if they emit more. A hackney carriage is not treated as a car for capital allowances, so it can qualify for the Annual Investment Allowance instead. High-mileage drivers in cheaper cars often do better on mileage; drivers with expensive or electric vehicles often do better on actual costs. The mileage claim calculator is a quick first check, and your accountant will run the comparison before you commit.
Allowable expenses for drivers
| Expense | Claimable? | Notes |
|---|---|---|
| Uber, Bolt or operator commission and service fees | Yes | Where your fares are recorded gross |
| Fuel, insurance, servicing, tyres, road tax, MOT | Actual costs method only | Business share; already covered by the mileage rate |
| Vehicle rental or hire charges | Actual costs method only | Business share |
| Parking, tolls, congestion charges | Yes | Business journeys, under either method |
| Parking and traffic fines | No | Fines and penalties are never allowable |
| Driver licence renewal, DBS check, licensing medical | Yes | Costs of keeping your licence to trade |
| Phone, data and a dashcam or phone mount | Yes | Business share of a mixed-use phone |
| Radio circuit or taxi association fees | Yes | |
| Cleaning and valeting | Yes | |
| Accountancy fees and bookkeeping software | Yes |
App earnings: what HMRC already knows
Since 1 January 2024, digital platforms that connect drivers with passengers must collect your details (including your National Insurance number) and report your earnings to HMRC each year. Earnings for a calendar year are reported by the following 31 January, and the platform must give you a copy.
That report is not a tax return. It covers a calendar year broken into quarters, and it shows earnings after the platform's fees. Your tax return runs from 6 April to 5 April, so you still need your own records: weekly statements from each app, cash fares, tips and expenses. Tips you receive for driving are part of your business income. If your return and the platform report differ, make sure you can explain why.
VAT for taxi and private hire drivers
You must register for VAT if your taxable turnover goes over £90,000 in any rolling 12 months. Fares are standard-rated at 20%, including extras such as waiting time. Tips passengers give freely are outside the scope of VAT.
What counts as your turnover depends on how you work:
- If the operator or app acts as your agent, the fares are your supplies. HMRC's taxi notice says you must add back any commission, rental or agency charges deducted before you are paid when you test the threshold. A driver who receives £75,000 after a 25% commission has fares of £100,000 and is over the threshold.
- If the operator acts as principal, it supplies the journey to the passenger and accounts for VAT on the full fare, and you supply your driving services to the operator. The courts have held that London private hire operators must act as principal.
From 2 January 2026, operators acting as principal can no longer use the Tour Operators' Margin Scheme to pay VAT only on their margin. HMRC says drivers are affected only if they had used that scheme themselves. If you do register, the Flat Rate Scheme rate for transport including taxis is 10%. Read your platform's driver terms and let your accountant confirm which model applies before you rely on a turnover figure.
Licence renewals and the HMRC tax check
When you renew a taxi or private hire driver licence (or apply for the same type of licence with another council), you must first complete an HMRC tax check. The rules have applied in England and Wales since 4 April 2022, and in Scotland and Northern Ireland since 2 October 2023. The check confirms you are registered for tax and gives you a 9-character code for the licensing authority. You must do it yourself (an accountant cannot do it for you), and the code expires after 120 days. First-time applicants confirm their tax responsibilities instead. In practice, being registered for Self Assessment and filing on time keeps your licence moving.
Key deadlines and Making Tax Digital
If you started driving during 2025/26, register for Self Assessment by 5 October 2026. Then:
- 31 January 2027: file your 2025/26 return and pay the balance, plus your first payment on account for 2026/27.
- 31 July 2027: second payment on account for 2026/27.
- 31 January 2028: file your 2026/27 return and pay any balance.
Making Tax Digital for Income Tax applies from 6 April 2026 if your self-employment and property income before expenses was over £50,000 in 2024/25. The threshold drops to £30,000 from April 2027 (based on 2025/26) and £20,000 from April 2028. If you are in, you keep digital records and send quarterly updates by 7 August, 7 November, 7 February and 7 May. A full-time driver with more than £30,000 of fares in 2025/26 will need to use it from April 2027.
How GoForma helps drivers
GoForma is a UK online accountancy practice working with self-employed people across the country by phone, video, email and WhatsApp. Our accountants are ACCA and AAT qualified, and we have filed more than 7,000 tax returns.
- Start Sole Trader (£44 a month plus VAT, 50% off for the first 3 months): your Self Assessment return, a dedicated personal accountant, WhatsApp support and FreeAgent accounting software, worth £360 a year, included. See Start Sole Trader.
- Start Sole Trader + MTD (£68 a month plus VAT) adds your quarterly Making Tax Digital submissions.
- Lite Sole Trader (£22 a month plus VAT) suits part-time drivers under £20,000 turnover who keep their own books.
All packages are rolling monthly. Not sure whether mileage or actual costs suits your car, or whether you are near the VAT threshold? Book a free consultation and we will talk it through.