Taxi driver self assessment - The Book-keepers Forum (UK)

NA_AA · Guru

Taxi driver self assessment

Cheshire · Master Book-keeper

Hi Nadia
I read something on here the other day about issues with taxi drivers and the issue over capital allowances for hackney cabs. Plus the issue over the fact that they are cash businesses. Have a route on the site - it was within the last couple of weeks. Also - have a peek around HMRC's manuals where there are a few bits.

NA_AA · Guru

ð Thank you

Cheshire · Master Book-keeper

Hi Nadia
Ive found a couple of HMRC links to get you started, including the VAT side, although if you key in 'HMRC Taxi Drivers' into google it is all doom and gloom - guess the best way to look at it is make sure you cover off all the issues raised. They are ones which, I understand, are on HMRC's radar.

www.hmrc.gov.uk/manuals/vtaxpermanual/vtaxper77100.htm

www.hmrc.gov.uk/manuals/vtaxpermanual/vtaxper77200.htm

www.hmrc.gov.uk/manuals/chmanual/ch402334.htm

Sorry I didnt add them last night, was just too tired!

Leger · Master Book-keeper

There are no special rules regarding taxi driver self assessments, but it is a cash business and HMRC could pick up if the figures look wrong (as they do with all cash businesses)

Joanne was referring to a recent thread regarding vehicles, only a London Style Cab classes as a commercial vehicle for capital allowance purposes. Any other hackney vehicle is a car and normal WDA rules apply.

NA_AA · Guru

On a previous thread there is a mention a few times that hmrc use a formula to calculate takings by looking at the mileage in the car. Does anyone know what the formula is?

FoxAccountancyServices · Expert

Hi Nadia

HMRC know that for every £1 of income, there should be approx X pence of fuel dependant on car. And because taxis in the same general location charge more or less the same fare per mile, they can work out from the mileage, if the income matches. Of course, the taxi can be used for personal reasons, but looking at the two together gives them a fair idea on whether someone is under-declaring income (or at least needs to explain the why). I dont know what the formula is, but I will try and find out.

NA_AA · Guru

Thank you If I get to find out what the formula is before you then I will let you know

FoxAccountancyServices · Expert

I am meeting tonight with a former Inspector of Taxes, so will try to remember to ask!

Leger · Master Book-keeper

Each taxi will be different, but I would look at the following as a yardstick

Get the total mileage for the year then agree with client personal use (say 10% for the exercise but let your client decide) eg 50,000 miles

45,000 miles of which you need to take into account dead mileage on returning to the rank, so 22,500 paid mileage. I would then round that up a bit to 27,000 miles because there will be some flag downs.

Divide that by the mpg and that will give you the gallons used. Then you can work out the approx fuel cost, and see if it matches up within reason to the fuel receipts.

Private hire cars or hackneys with radios won't have as much dead mileage so you need to take that into the equation as well.

As a taxi driver in a previous life that's how I would do it but I have absolutely no idea what the formula is with HMRC so caveat emptor. Personally I doubt HMRC would make it public knowledge.

Would be interesting if you find anything out Michelle.

VinceH · Expert

"Personally I doubt HMRC would make it public knowledge."

Quite. They wouldn't want people to spot the flaws in their formula.

FoxAccountancyServices · Expert

Got the skinny on HMRC taxi investigations...

HMRC computer throws up any whacky sales/motor expenses ratio
Town Hall have mileage records for every cab, from when it goes in to be licensed, and HMRC have access to this.
They review the mileage and consider 60% to be engaged mileage (ie, making money)
They then use the 60% mileage to deem approximate sales.
He said there is no fixed calculation, as each subject will have other factors to be considered

Leger · Master Book-keeper

Lol at the comment Vince made.

So no allowance for private mileage then? But like I said, having a radio would reduce the dead mileage anyway.

FoxAccountancyServices · Expert

Well I guess it depends on the personal usage, might be negligible... but no doubt they look at that, as the sales/motor exps ratio would be after private adjustment? Though what is strange is that so many cab drivers might not fill out a breakdown of expenses on the tax return, and there is no requirement to submit accounts - so how do they get the sales/motor info? I don't think they have to file anything with Town Hall?

-- Edited by FoxAccountancyServices on Tuesday 27th of October 2015 11:22:49 PM

Cheshire · Master Book-keeper

Leger wrote:

Lol at the comment Vince made.
So no allowance for private mileage then? But like I said, having a radio would reduce the dead mileage anyway.

Or via the Uber iphone method.

Actually wasnt there some mention (mightve been on here) that they will also check the office records for journeys booked.

FoxAccountancyServices · Expert

Yes there's a lot of information they can look at, which is why I think there is no fixed formula... I think the start is turnover - they know what mileage should generate that income. Then, they look at what 60% of engaged mileage would generate, using the Town Hall record.

Cheshire · Master Book-keeper

Interesting stuff Michelle, I reckon that ex HMRC inspector bod is on speed dial now for a few people.

FoxAccountancyServices · Expert

He is a great source of information!! He gave me a lift to our meeting, so had lots of time to pick his brain - there and back! LOL!

FoxAccountancyServices · Expert

In the last two firms I worked for, both tax managers were ex revenue... so they were great for quizzing!

Leger · Master Book-keeper

I'm guessing they will have a predetermined expense percentage band, but it only takes a few expensive repairs to skew that figure.

If a return was picked out for investigation I would imagine that they would get the annual mileage from the Council (which won't correspond with the tax year) and multiply the paid mileage by the going rate per mile.

So if paid mileage is 30k and they assume takings should be £45k, then discover that the taxi driver has put down £25k then ooops.

FoxAccountancyServices · Expert

Yes I think that's how they must start off, John. As you say though, often mileage records are out of sync.. but no doubt they average out, or something, I think its only the really really whacky ones, which will stand out, to be fair! After that, they will probably as the driver for more info on fuel, repairs etc. If the tax return shows one figure for expenses, they would only be able to go off sales and mileage records anyway

Leger · Master Book-keeper

Yes, I rather over complicated things in my reply earlier today, which would only give a fuel cost. I'd not taken into account there would likely only be a single figure for expenses.

I thought about mileage being out of synch, but then thought maybe they also check with the driver what the mileage is at time of investigation. It's nowhere near going to be an exact science though is it?

FoxAccountancyServices · Expert

No John, that's why I think they will pick out the whacky ones, that jump of the page and scream "I AM TAKING THE (INSERT YOUR OWN WORD HERE)"

NA_AA · Guru

Thank you for all your help - this has been very useful

VinceH · Expert

"I AM TAKING THE (INSERT YOUR OWN WORD HERE)"

But taxi drivers would never, ever do that. As honest as the day is long, they are, and meticulous with their paperwork.

FoxAccountancyServices · Expert

wink

Peaman · Veteran Member

The practice that I used to work at always tried to prepare cabbie accounts (we had a lot of them) on a fuel:takings ratio of 1:8 to 1:10. One of the partners apparently spoke to an HMRC inspector and she was told that this was the ratio that they used to check cabbie's figures.

We used to prepare the accounts with the figures provided by the client and if the fuel:turnover was around 1:8 to 1:10 we would be happy. If the ratio was much lower we would have a chat with the client to determine the level of personal mileage.

Saying that, I do remember completing accounts with a ratio as low as 1:6.

This was a few years back, so it may have changed a little with fuel price increases!