Making Tax Digital · Sole traders
Private-hire drivers: vehicle finance, insurance and licensing costs
ONLY£15A MONTHPrivate-hire income can arrive after platform charges, while vehicle costs combine finance, insurance and local requirements.
Private-hire income can arrive after platform charges, while vehicle costs combine finance, insurance and local requirements. The records need to explain each component. A single monthly payment or net platform payout rarely tells the whole tax story.
Read the vehicle agreement
A lease, hire-purchase agreement and outright purchase can have different tax treatment. Identify the capital, finance and service elements rather than claiming every instalment as the same expense. Cars are not eligible for Annual Investment Allowance simply because they are used for private hire.
Consider actual costs and simplified mileage only where eligible. HMRC's simplified-expenses rules exclude certain commercially designed or adapted vehicles. A black cab should not automatically use an example written for an ordinary eligible car.
Record the cost of operating legally
Keep private-hire insurance, vehicle licensing, plating, inspections and relevant checks identifiable. Requirements vary by licensing authority. Assess the business purpose and any private-use element under the applicable rules.
Platform commissions need to be reconciled to gross fares, refunds and payouts. Tips and cash fares also belong in the business records. A payment held by a platform does not disappear merely because the driver has not yet transferred it to the bank.
Worked example: a weekly platform settlement
A driver has £1,000 gross fares, £150 platform fees and £30 refunds, producing an £820 settlement before any other adjustments. The records explain each amount.
If £820 is recorded as sales and £150 is then deducted again, the platform fee is effectively counted twice. Reconcile the provider report before reviewing vehicle expenses or the tax estimate.
Reconcile receipts, not just bank payouts
A bank deposit is not always the original sale. A platform, card processor or agent may deduct fees before sending you the balance. Keep the statement showing the gross amount, deductions, refunds and final payout, then explain the difference in your records.
Cash needs the same attention. Record customer cash when received under the cash basis, even if some of it is spent before the rest reaches the bank. Banking cash already recorded as a sale is a transfer between your cash and bank records, not another sale.
HMRC's record-keeping guidance covers income and business expenses. The useful practical test is whether another person could follow a payment from the original sale to the amount received without counting it twice.
Do not use bank feeds as a reason to ignore payment accounts, credit cards, cash or payments made personally for the business. List every place where business money passes, choose the source for each type of transaction and review transfers between those sources. This turns reconciliation into a repeatable check rather than a search through several unrelated statements.
Give equipment its own review
The tax treatment of equipment depends on the accounting basis and the asset, not just its price. Under the cash basis, many business equipment purchases are deducted when paid. Cars and certain other expenditure are exceptions. Under traditional accounting, a purchase with lasting business use may instead enter the capital-allowances calculation.
HMRC's capital-allowances guide explains the available routes. Annual Investment Allowance can cover qualifying plant and machinery, subject to its conditions and limit, but it does not apply to cars. Accounting depreciation is not itself the tax deduction.
Keep the purchase invoice, date, payment evidence and any finance agreement. A finance instalment can combine capital and interest, so treating every payment as an ordinary running cost may give the wrong answer. Record private use where relevant and retain the disposal paperwork when equipment is sold or part-exchanged.
For an expensive or unusual purchase, resolve the treatment before relying on a tax estimate. A category chosen from the merchant name cannot tell you whether an item was bought outright, leased, used privately or acquired as part of a larger building project.
Start with the business purpose
An expense category describes a cost; it does not decide whether the cost qualifies for relief. The starting point is whether the spending was for the trade. Where an identifiable part was private, keep that part out of the claim. A personal withdrawal is not an expense simply because it leaves the business bank account.
HMRC's self-employed expenses guide explains the distinction between running costs, capital expenditure and private use. For example, a supplier may sell both equipment and household products. The shop's name is useful evidence, but the invoice tells you what you bought.
Record the full transaction and the business calculation clearly. If a £120 bill has £30 of identifiable private spending, a £90 business claim is easier to explain when both amounts and the reason for the split are retained. Do not delete the private part merely to force the bookkeeping total to resemble the tax deduction.
Nor is a deduction a reimbursement. Spending £100 to save a fraction of that amount in tax still leaves you with a real cost. Buy what the business needs, keep appropriate evidence and claim the relief available under the correct rules.
Keep one vehicle history
Retain the agreement, specification, mileage records, business-use calculation and previous claims. Review the method before changing vehicle or software. Track licensing renewals separately so a tax-record review also reveals missing supporting documents.
Take the next step
Avona.app offers a self-service route from £15/month. Bring your records together, review the figures and choose a workflow that fits your business. For professional help, discuss the scope and total price of Avona Concierge, managed by chartered accountants, before choosing a service.