Tax Advice for Self Employed Uber Drivers

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Tax Advice for Uber Drivers

Being an Uber Driver means you need to handle your own tax and be self employed.  If self employment is new to you, it can be difficult to know where to start and what it all means.

Here I show you how to get started as self employed, unravel some of the confusion around taxes and get you prepped for doing your first tax return.

Tax Advice for Self Employed Uber Drivers

What is Self Employment

Self employment means that you work for yourself rather than for someone else. This means you:

  • Are responsible for finding your own work, Uber is not obligated to guarantee you with products and income;
  • Decide when you want to accept or decline a job;
  • Need to have your own method of transport, mobile phone and kit to make deliveries;
  • Will not receive sick pay or holiday pay, so you will go without earnings during these times;
  • Need to register as self employed, work out your own tax and send a tax return to HMRC.

Being self employed doesn’t restrict you to just working as an Uber Driver.  It means you can take on work elsewhere or even hold down a full time job while working as an Uber Driver on the side.

Useful Reading: Being Employed and Self Employed


What Tax Do You Pay

You will need to pay Income Tax and 2 types of National Insurance (Class 2 and Class 4) on your Uber Earnings.

Earnings mean all your Uber Driver income less expenses and other allowances you are entitled to.

There is often a misunderstanding amongst self employed Uber Drivers that their earnings are tax free so they can work without any tax obligations.  This is not true.

Uber Drivers must register with HMRC and declare their earnings.  Earnings may be tax free because you earn below the personal allowance, however you still need to declare everything to HMRC using a self assessment tax return.

There is one exception however.  

You only need to register and pay tax on your Uber Driver income if you earn more than £1,000 in a tax year (6 April to 5 April).  If you make less than £1,000 as an Uber Driver then it’s tax free and you don’t need to declare it. Useful if you wanted to just test out life as an Uber Driver or just earn a small amount on the side.  This perk is called the HMRC Trading Allowance.

Useful Reading: What is a Personal Allowance, Tax and National Insurance When You’re Self Employed


How to Register as a Self Employed Uber Driver

If you make more than £1,000 as an Uber Driver or you intend to build up a steady self employment income,  with Uber a regular part of that, then you should register with HMRC.

Remember a tax year runs from 6 April to 5 April.  And when it comes to taxes get used to thinking of everything in this way.  It is on this you need to work out your earnings and taxes for HMRC.

When to Register

Officially you should register by 5th October in the second tax year of being an Uber Driver.

So if you became an Uber Driver on 1 April 2018 then you would need to register as self employed by 5th October 2018.

How to Register

You can register as Self Employed online.  It’s fairly easy to do yourself and I’ve put together a video guide here.

Useful Reading: How to Register as Self Employed Video Tutorial


What Are Expenses

One of the perks of being self employed is that you get to set off costs against your income.  This reduces the amount of tax you have to pay.

There are rules set out by HMRC which expenses you can claim for (allowable expenses) and those you can’t (disallowable expenses).

Allowable Expenses for Self Employed Uber Drivers

In the main anything you need to pay for in relation to working as an Uber Driver will be allowable or “tax deductible”.  

Your vehicle is likely to be the major cost you incur when you are an Uber Driver and Uber have strict regulations on the age and type of vehicles you can drive.  Uber recommend dealers who specialise in car sales and leasing that suit the needs of their drivers but however you choose to own your car there are rules around what you can claim against your tax:

Mileage Claim

If you are just starting out you may opt to use your own car, in which case you can claim for the number of miles you drive.

Record you miles to and from your destination since you can claim 45p for the first 10,000 miles of driving and 25p thereafter.

If you choose to claim for mileage you cannot claim for the cost of your car, servicing and insurance.

Car Purchase

If you choose to purchase a car then you are entitled to tax relief based on the amount you paid.  

However you cannot claim for the full amount of the car in one tax year and instead you may have to claim for a portion of the car cost depending on its emissions using Capital Allowances:

  • up to 50 g/km – 100% first year allowance
  • 51g/km-110g/km – 18% capital allowances
  • 111g/km or more – 8% capital allowances

If you opt to use this method for your car, then you are entitled to claim for fuel, servicing, insurance and repairs on your vehicle as tax deductible expenses.

Car Lease Payments

Leasing a car is a another option for owning a car as an Uber driver.  In this case, you would be allowed to claim the monthly cost of the lease against tax, as well as fuel, servicing, insurance and repairs.

Here are some other expenses you may have to pay for that can be deduct against your income:

  • Uber commissions and service charges;
  • Any costs incurred as part of the Uber application process such as Private Hire Vehicle (PHV);
  • Tolls and Parking charges;
  • The business element of your mobile phone, either note down your spending or estimate the percentage business use for example 80% business and 20% personal);
  • Uber Phone Hire Charge if you opt to use one of their phones/sat nav systems;
  • Passenger extras such as water and sweets;
  • Car cleaning and valeting;
  • Vehicle Insurance and Public Liability Insurance;
  • Accountants fees;
  • Bank charges of a business bank account.

There may be expenses you pay for that you use personally, like your mobile phone.  In these cases you can only claim a portion as an allowable expense.

So if you use your mobile phone for 60% work and 40% personal, then you take 60% of the total costs to put against your taxes.

Disallowable Expenses for Self Employed Uber Drivers

After years of people pushing the boundaries and claiming for some questionable expenses, HMRC have a growing list of expenses that are disallowable.

Here are some common examples of disallowable expenses for Self Employed Uber Drivers:

  • Fines and penalties;
  • Lunch, unless in special circumstances;

Useful Reading: Allowable Expenses, Disallowable Expenses, Claiming Business Travel


What Records Should You Keep

Everything!

Once you are self employed you need receipts to support all the expenses you want to claim You’ll also need to keep reports to document any income you receive from your customers however they pay you – cash, card or bank transfer for example.

While Bookkeeping is an unavoidable part of being self employed.  You can take away some of the pain of doing it by:

  1. Open up a separate bank account for yourself and set this to send/receive all your business payments. 
  2. Set up a cloud accounting software which is the quickest way to manage your bookkeeping, store your receipts and file your tax return.

I use Freeagent which is a great little cloud accounting software and app that let’s me:

  • Link my business bank account so I don’t have manually enter payments;
  • Store copies of invoices (you’re legally required to store your receipts for 6 years by HMRC);
  • Photograph receipts and make expense claims;
  • Raise and track my invoices automatically;
  • See how much tax I owe in real time;
  • File my tax return directly to HMRC;

If you do not plan to hire an accountant then Freeagent will make managing your taxes much easier.

Read my in depth review of Freeagent HERE and how I use it to manage my business finances. 

You’ll also get a free 30 day trial – no credit card required so you can walk away if you don’t like it.  But I think you’ll love it as much as I do!

Useful Reading: Bookkeeping When You’re Self Employed, How to Organise Business Receipts


What is a Self Assessment Tax Return Form

A Tax Return is a form you need to complete online once a year by 31 January each year. The penalties for missing this deadline start at £100.

A tax return contains:

  • Your personal details;
  • A summary of all your income not just Uber Driver (like bank interest, employment income and rental income);
  • Details of allowable expenses you wish to claim against your taxes;
  • A tax calculation;
  • How much tax you need to pay.

One tax return form covers a tax year.  A tax year runs from 6 April to 5 April.  So a tax return for 2017/2018 covers earnings during 6 April 2017 to 5 April 2018 and needs to be filed by 31 January 2019.

You’ll need to pay tax due by this date too, as well making a contribution of 50% towards your next years tax bill.  This is called a Payment on Account.

You’ll need to make a payment on account if:

  • Your tax bill is over £1,000
  • You pay less than 80% of the tax they owe through the payroll system

There are proposed changes to the reporting system called Making Tax Digital.  This will abolish the current system of reporting once a year and replace it with quarterly reporting and tax payments.  This change currently on hold but will be enforced at some point.

Useful Reading: Self Assessment Tax Return Form, Making Tax Digital, Payments on Account.


How to Fill Out Your Tax Return

To get started with filling your tax return you will need any paperwork which reflects your earnings including:

  • Personal Information
    • Your Government Gateway Login and Password
    • National Insurance Number
    • Partners Information if you want to claim Marriage Allowance
  • Income
    • P45 or P60 issued covering employment income and tax deducted
    • P11d Benefit in Kind Forms
    • Dividend, savings and interest certificates
    • Pensions
    • Rental income and expenses
    • Self employment income and expenses
How To Submit Your Self Assessment Tax Return

You need to submit your self assessment tax returns online, except for in really exceptional circumstances.  

The form can be found by logging into your Government Gateway Account to complete your self assessment tax return online. You set this up when you registered for self employment.  Once logged in you can choose the option to “Complete Your Self Assessment Return”.

Complete the Right Sections

You need to complete the first part of the tax return form with your personal details.  This includes a series of questions which help ‘Tailor Your Return’. By doing this the right sections will be provided for you to fill in.  For Self Employed Uber Drivers you’ll need to make sure you fill out the Self Employment section to declare your business income.

If you have a full time job you’ll need to enter your earnings and any tax deducted by your employer in the “Employment Section”.

Useful Reading: How to Prepare to File Your Own Tax Return


Your Key Actions to Become a Self Employed Uber Driver:

  1. Register as Self Employed
  2. Open a business bank account
  3. Set up a cloud accounting software like Freeagent
  4. Set aside money for taxes each month at your highest tax rate.

Head over to the Business Hub. It’s full of templates and guides to help you manage your finances when you’re self employed. And don’t forget to find me on Facebook.

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