Dealing with self-employment taxes as an on-demand driver can be quite a chore. We’re here to help you set up your business and offer guidance down the road.
As an on-demand driver, you’re running a small business, so you need to accurately report your income and submit evidence of fuel and maintenance fees. Don’t leave this to the last minute because you’ll find yourself in a chaotic and stressful search for invoices and receipts.
It may sound daunting at first, but this guide will lead you through the process. Shout out to our partner GoSimpleTax for helping us clear things up for you. Using their app will make this process easier for you – check out their special offer at the end of this guide.
For employees, HMRC – UK’s tax, payments and customs authority, deducts taxes directly from the gross salary, but if you’re an on-demand driver you need to do this yourself. HMRC will use your Self Assessment to calculate how much Income Tax and National Insurance you need to pay.
As an on-demand driver, you’ll be classed as self-employed from the moment your gross income exceeds the tax-free trading allowance of £1,000 per year.
In other words, unless you drive only a few hours during weekends, you have to report your rideshare income and pay the taxes.
A UK tax year runs from 6 April to the following 5 April. For example, the 2022/2023 tax year starts on 6 April 2022 and ends on 5 April 2023.
You have to file your Self Assessment and pay your taxes by 31 January after the end of the tax year. So for tax year 2021/2022, you can submit your Self Assessment between 6 April 2022 and 31 January 2023.
Important: The paper return deadline is sooner, on 31 October – keep this in mind if you don’t want to file online.
In order to pay your taxes, you first need to register as self-employed by 5 October of the second tax year.
You’ll get a £100 fine if your tax return is up to 3 months late. You’ll have to pay more if it’s later. On top of the late payment penalties, HMRC also charges interest on late payments. Read more about the benefits of filing early.
This step is essential to pay your taxes and avoid penalties.
When registering, you’ll need your National Insurance number, as well as all relevant information regarding your address, the nature of your self-employment, and when exactly you started.
After you create an account and register for taxes, HMRC will send you a letter with your 10-digit Unique Taxpayer Reference (UTR) and set up your account for the Self Assessment online service.
Important: Register by 5 October after your first tax year to avoid any penalties.
Before you start, make sure you have:
You can do this in one of three ways:
Important: bear in mind that the submission deadline for paper returns is 31 October. We recommend one of the first two methods instead, because then you have until midnight on the 31st January to submit your Self-Assessment tax return.
It’s best to get familiar with the online process early, as from April 2023, HMRC will require you to file your self-assessment digitally and provide updates every quarter via your digital platform.
Regardless of which option you choose, it’s best to take a look at the forms and helpsheets first, so that you know exactly what goes where.
Your on-demand driving activity is classed as self-employed, so you’ll have to report your rideshare income on a supplementary form, SA103. This is also where you get to declare any allowable expenses which will be deducted from your tax bill. There are two options:
* £85,000 as of 2019/20
You’ll need to enter your turnover under the business income section. This is the grand total of your income during the tax year before expenses.
If you have other sources of self-employed income, you can enter these separately, but make sure you add the one with the most income as your main employment.
If you have other income to declare that’s not considered self-employment, you may need to fill out other supplementary forms too. See the full list of supplementary pages
You may be able to claim tax relief to lower your Self Assessment tax bill thanks to allowable expenses. There are many ways to reduce your tax liability, but as an on-demand driver, these three are the most relevant:
Your car-related expenditure isn’t the only cost that can claim against. You can also reduce your liability if you buy a computer for work or claim a room’s share of household bills (gas, electricity, telephone, broadband, and even rent) if you use that room as a home office.
Important: for all this, you’ll need to meticulously record and submit evidence of each expense, but you don’t need to send these in when you submit your Self Assessment tax return. However, keep these records of expenses for five years in case HMRC asks for them.
Once you’ve submitted your Self Assessment tax return, HMRC will tell you how much tax and National Insurance Contributions you owe.
Here’s how you can pay your Self Assessment tax bill:
Tip: If you’re making your payment close to the deadline, choose one of the faster options to avoid penalties.
Paying your taxes just once a year is something you need to prepare for, as it can be one hefty bill. To avoid such a big one-time expense, you can distribute your tax payments throughout the year.
Once you’re up to date with your Self Assessment payments, you can start making advance payments in weekly or monthly instalments on your next tax bill.
For this, you can arrange for what is called a budget payment plan:
You can also pay your past liabilities in instalments if:
In this case, however, you’ll have to pay interest, and if you don’t keep up with your repayments, HMRC can ask you to pay everything you owe.
Important: Pay all the taxes you owe until 31 January after each tax year to avoid any penalties.
Understanding the Self Assessment process can be difficult and confusing, especially because of the technical terms and information. To make it easier, we’ve put together a glossary of terms to help you better understand the tax terminology:
Accounting year: the 12-month period covered by your business’s accounts, which may or not be the same as the UK tax year. This means between 6 April of the first tax year -5 April of the second tax year.
Tax year: 12-month period covered by a Self Assessment tax return. It’s the same for everyone who pays tax via Self Assessment – 6 April until 5 April the following year.
Allowable expenses: business costs that HMRC allows you to deduct from your profits. These reduce your profits and resulting Income Tax bill.
Income: money you receive as a rideshare driver for the rideshare services you offer to customers. The money you receive is your personal income.
Trading allowance: the first £1,000 of income that you earn from self-employment is your trading allowance and it isn’t subject to tax.
Tax relief: these enable you to pay less tax to cover money you’ve spent on business expenses or self-employed costs or to get back tax or have it repaid in another way (eg into a personal pension). You get some types of tax relief automatically, but you must apply for others.
Simplified expenses: a quicker and more convenient way of calculating some business expenses using flat rates instead of working out the actual cost. HMRC allows this. Can be used for vehicle and fuel costs.
Self-employed: working for yourself as a freelancer, contractor, agency worker or business owner, rather than being employed by an employer.
SA100: the main Self Assessment tax return that you need to fill out and file.
UTR: Unique Taxpayer Reference – a 10-digit code HMRC uses to identify self-employed people and their businesses for tax purposes. You need to include it in your Self Assessment tax return.
National Insurance contributions: contributions you pay to qualify for certain benefits and the State Pension. Self-employed people pay Class 2 and Class 4 National Insurance contributions (NICs).
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