Taxi and Private Hire Driver Tax Returns: Allowable Expenses Explained

Two decisions decide a driver's tax bill, and both are made before any form is filled in. The first is whether you report the fare or the payout. The second is how you claim the vehicle. Get either wrong and no amount of care with the small receipts will make it up.

Your turnover is the fare, not what reached your bank

A passenger pays a fare. The platform or the operator keeps a service fee or commission and pays you the rest. For tax, your turnover is the gross fare before anything was taken off, and the service fee is then claimed as an expense.

Reporting the net amount you received does three things, all bad. It understates your turnover. It loses you the deduction for the commission. And it produces a figure that will not agree with what the platform reported to HMRC, which is the kind of mismatch that invites a question.

Everything else on the statement counts too. Tips are taxable. Incentives, promotions, quests and boosts are income. Tolls, airport fees and congestion charges recharged to the passenger are income on one side and a cost on the other. Cancellation fees are income.

The vehicle: one method, chosen once

For any one vehicle you either claim HMRC's flat rate per business mile, or a business share of the actual running costs with capital allowances on the vehicle itself. You cannot claim both for the same vehicle. Once you use the flat rate for a vehicle you have to keep using it for as long as that vehicle is in your business, and you cannot use the flat rate at all on a vehicle you have already claimed capital allowances on.

For the 2025 to 2026 return the first band was 45p rather than 55p. The flat rate covers fuel, insurance, servicing, repairs and the vehicle itself. Parking and tolls on business journeys are claimed on top.

Two exclusions catch drivers out. The flat rate applies to cars, goods vehicles and motorcycles, and HMRC excludes vehicles designed for commercial use, which means a licensed black cab does not qualify. And if you have already claimed capital allowances on the vehicle, the flat rate is closed to you for that vehicle permanently.

On actual costs you claim the business proportion of fuel or charging, insurance including hire and reward cover, servicing, repairs, tyres, MOT, road tax, breakdown cover and cleaning, and you claim the vehicle through capital allowances. You still need a mileage log, because the business proportion has to be evidenced.

Which one is better?

It depends on four things: your annual business mileage, what the vehicle cost, how it was bought and its emissions. A driver doing 25,000 business miles in an older economical car often does better on the flat rate. A driver who has just bought an electric vehicle usually does far better on actual costs, because a new and unused zero emission car attracts a 100% first year allowance, so the whole cost can come off in the year of purchase.

Cars are excluded from the annual investment allowance, so an ordinary car is written down instead: the main rate is 14% a year from April 2026, down from 18%, and the special rate for higher emitting cars is 6%. A motorcycle or a van is not a car for this purpose and does qualify for the annual investment allowance, which normally means the full cost in year one.

The only way to know is to work it both ways on your own figures in the first year, because after that the choice is effectively made for you.

Licensing, insurance and the rest

• Licences. Your hackney carriage or private hire driver licence, the vehicle licence and plate, council fees, airport permits, topographical and safeguarding courses, DBS checks and the medical.
• Insurance. Hire and reward cover, public liability where you carry it, and breakdown cover on the business proportion.
• Operator and platform costs. The platform service fee, circuit or radio rent, booking fees and card processing charges. If you rent the vehicle from the operator, the rental is a cost and you will not be claiming capital allowances on a vehicle you do not own.
• Phone and equipment. The business share of phone and data, mounts and chargers, a dash camera, sat nav subscriptions.
• In the car. Cleaning and valeting, bottled water for passengers, card machine consumables.

What you cannot claim: parking fines and penalties, your own meals on a normal working day, ordinary clothing, and the private share of anything mixed.

VAT

Taxi and private hire fares are standard rated rather than zero rated, so a busy owner driver can reach the registration threshold. You must register once taxable turnover passes £90,000 in any rolling twelve months, or if you expect to pass it within the next thirty days.

The trap is in how turnover is measured. Where you work through an operator that acts as your agent, HMRC expects you to add back the amounts the operator deducts before paying you, such as circuit rent or vehicle rental, when you test the threshold. A driver measuring only the net receipts can be over the line without realising. Whether an operator is acting as your agent or as principal depends on the arrangement, and it changes who is making the supply, so it is worth establishing rather than guessing.

Records and dates

Keep every weekly statement, your bank statements, a mileage log, fuel and repair receipts, the licence and insurance paperwork and the vehicle purchase or finance agreement. If a platform only shows the last few weeks in the app, download the statements as you go.

The 2025 to 2026 tax year ran to 5 April 2026, and that return was due online by 31 January 2027 with the tax due the same day. Making Tax Digital for Income Tax is measured on gross turnover, so over £30,000 on the 2025 to 2026 return means starting on 6 April 2027 and over £20,000 on the 2026 to 2027 return means 6 April 2028. A full time driver is very likely to be in.

If you also deliver, or drive for more than one platform, it is all one trade and goes on one return. Our delivery rider and courier guide covers the delivery side.