Many taxi drivers miss out on a capital tax allowance that can cause them to pay more tax than is necessary.
This article will attempt to clearly explain this important tax allowance so you can file a proper tax return.
First, it’s important to understand the definition of a capital tax allowance. A capital tax allowance applies to fixed assets a business may claim as a deduction from net profit to arrive at the net taxable profit.
In the case of a cab driver, a fixed asset would be a vehicle used as a taxi. They are entitled to a capital tax allowance that can be spread over the life of the asset rather than the item being expensed in full in the year the purchase was made.
The taxi capital allowance allows taxi drivers to write down a portion of the cost of the taxi.
I purchased a taxi in 2009-2010, what can I claim?
If a driver has purchased a vehicle in the financial year 2009-2010 to use as a taxi, they can claim a first year writing down tax allowance of 25% of the cost of the taxi. The allowance is restricted to 3,000 pounds for vehicles costing over 12,000 pounds.
I purchased a taxi prior to 2009, what can I claim?
On vehicles purchased in previous tax years, you can claim a 25% writing down allowance on the balance not yet claimed.
I bought or sold a taxi in 2009-2010, what can I claim?
The capital tax allowance is the difference between the written down value for tax purposes and the amount of sale proceeds.
What allowances can I claim on my non-vehicle assets?
There is a first-year allowance on non-vehicle assets of 50% for small businesses. This must be taken in the current tax year.
What are my allowances for taxis bought on Hire Purchase
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 qualify as hire cars. This would increase the first-year allowance to 50%.
The allowance for subsequent years would remain at 25%.
Where do I list my capital allowances?
You can 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.”
As you can see, filling out your self-assessment tax return may be more involved than just recording your typical expenses. Why not ask a question? We have the answers you need.