Sole traders

For tax return purposes, the treatment of taxi drivers' income and expenses depends on whether they are classified as self-employed or employees.

Self-Employed Taxi Drivers

Self-employed taxi drivers are responsible for reporting their income and expenses on their self-assessment tax returns. They must account for all earnings from their taxi services and can deduct allowable business expenses to calculate their taxable profit Taxi driver-whether an employee, TC08488: HENRY RAFFERTY.

VAT treatment for self-employed drivers depends on whether they provide services directly to customers or through a taxi firm. If they provide services directly to customers, they must account for VAT if their turnover exceeds the VAT registration threshold. If they provide services to a taxi firm, the firm must account for VAT on the fares received, and the drivers' earnings are considered remuneration for their services Taxis and private hire businesses, VTAXPER77200 Accounting Consequences.

Employed Taxi Drivers

If taxi drivers are employees of a taxi firm, the firm must account for VAT on the full takings from customers. The money retained by the drivers is outside the scope of VAT as it is considered remuneration for their services as employees Taxis and private hire businesses, VTAXPER77200 Accounting Consequences.

The employment status of taxi drivers can be determined by examining the contract or agreement between the cab firm and the driver and how the driver is treated for direct tax purposes. Clear documentary evidence is required to argue that drivers are employees VTAXPER77000 Are The Drivers Employees Of The Cab Firm.

Specific Cases and Tribunal Decisions:

In the case of RJ Newall, the tribunal held that a taxi driver was self-employed and making taxable supplies of his services, rejecting the contention that he should be treated as an employee Taxi driver-whether an employee.

In the case of KM Sudhan, the First-tier Tribunal upheld penalties imposed on a taxi driver for under declaring profits, emphasizing the importance of accurate income reporting Penalty imposed at 45%.

The case of Henry Rafferty highlighted the consequences of not declaring the full level of turnover as a self-employed taxi driver, leading to assessments to recover income tax TC08488: HENRY RAFFERTY.

In summary, the tax return treatment for taxi drivers hinges on their employment status and the nature of their services. Self-employed drivers must report their income and expenses accurately and account for VAT if applicable, while employed drivers' earnings are treated as remuneration, with the taxi firm responsible for VAT on customer fares.