Being a Deliveroo rider comes with many perks such as flexibility and control over your time. But, just like other self-employed individuals, Deliveroo riders also have to pay tax.
This could be pretty confusing especially if you only recently started as a Deliveroo rider or you’re new to self-employment.
We’re going to break down all the tax advice Deliveroo riders have to know so you can avoid penalties.
Before you worry about the tax you’re to pay, you need to work out what employment status you fall under. For Deliveroo riders, you should fall in any of the two categories:
1: Self-Employed: This is when you get all your income from Deliveroo regardless of the roles which include courier driving or selling on Depop.
2: Employed and Self-employed: You are employed and self-employed if you work for Deliveroo in conjunction with a full-time job. You will need to follow the procedure for a self-employed Deliveroo rider as well as the Income Tax and National Insurance contributions from your other job. Your employer will deduct this PAYE tax from your salary monthly.
HMRC Requirements for Self-Employed Deliveroo Rider
You need to register to HMRC and declare your income if you make over £1,000 as untaxed income during a tax year. This is great if you intend to earn a little cash on the side or try out working for Deliveroo. In this instance, we can call this the HMRC Trading Allowance.
If you’re a self-employed Deliveroo rider, you have to register with HMRC as self-employed on the next tax year by the 5th of October after you started working for Deliveroo. A typical tax year runs from April of the present year to April of the next year. So, your tax from your Deliveroo income should be calculated based on your earnings from April 6th to April 5th of the tax year.
Taxes You Have to Pay as a Self-Employed Deliveroo Rider
All taxes are based on the amount of money you make from Deliveroo after removing all of the expenses. There are two main categories of taxes you have to pay as a Deliveroo rider:
- Income Tax
For the 2020/2021 tax year, you can earn up to £12,500 without paying any taxes, anything higher than this and the tax rates come into effect. For incomes between £12,501 and £50,000, you pay a basic rate of 20% for taxes. If your income is between £50,001 and £150,000 you will pay a higher rate of 40% as tax. Also, if you somehow make more than £150,000, your rate will be 45% for your taxes.
- Class 2 and Class 4 National Insurance
For the Class 2 national insurance, you have to pay £3.05 every week for profits that are more than £6,475 yearly. The Class 4 national insurance, on the other hand, is a 9% fee on all profits in the range of £9,501 – £50,000 and 2% on profits higher than £50,000.
Reducing Your Tax Bill
One of the advantages of being a self-employed earner is that you can deduct your expenses from your income before calculating the tax you have to pay. You will greatly reduce your taxes by taking advantage of this, but how do you know the expenses that can help reduce your taxes? Find out below.
Allowable Expenses for Self-Employed Deliveroo Riders
HMRC has specific rules which specify the type of expenses you can claim and those you can’t. As a Deliveroo rider, all the products or services you pay for in the course of work is called a tax-deductible.
Here are some examples of tax allowable expenses for self-employed Deliveroo Riders:
- Bike maintenance fees
- Accountant fees
- Deliveroo service charges and commissions
- Bank charges for a business bank account
- Business mileage and travel
- Parking charges NOT fines
- Thermal and kit bags
- Mobile phone, Phone holder and data allowance
The following expenses are classified as disallowable because you can’t use them to reduce your tax:
- Self-assessment interest and penalties
- Lunch, except in unusual circumstances
- Parking penalties and fines
Self-Assessment Tax Return Form
A self-assessment tax return form is used to declare all of your earnings in this case from Deliveroo. You should turn this form into HMRC latest by 31st of January every year. The penalties for missing the submission deadline begins from £100.
A self-assessment tax return should have:
- Your personal information
- A summary containing all of your income including other sources such as bank interest and rental income.
- All the allowable expenses you want to claim against your tax
- Tax assessment with detailed numbers
- The amount of tax you have to pay
Business Account and Proper Accounting
You should get a business account so you can stay organized and easily calculate all your Deliveroo-related expenses and income. It will be easy to differentiate your personal expenses from your business so that you don’t have to check through lengthy bank statements manually.
A spreadsheet will also come in handy and help uncomplicate the tax process. Divide the sheet into monthly tabs and arrange each tab according to expenses and income. Keep this spreadsheet updated so that when you need the information for HMRC, you will just take it out and the chance of any mistake is greatly reduced.
Government Support For COVID-19
The UK Government allows self-employed individuals that are diagnosed with coronavirus or need to self-isolate to get support through a benefits system, and this includes Deliveroo riders.
Self Employed Income Support Scheme
This grant has been extended till April 2021 and it gives self-employed individuals up to 40% of your average monthly income from November to January. The maximum amount from this is £3,750 and it will be paid once. The UK Government has also announced a second grant that covers February – April with more information to come later.
Help With Tax Payment
The UK Government has made it easier for self-employed people to pay taxes. Self-employed individuals can use the Time-To-Pay service from HMRC which allows them to pay taxes in 12 smaller payments instead of one lump sum. There’s more:
You have to register online with the Government and provide your details so they can determine the amount of support you qualify for.
“New Style” Employment & Support Allowance (ESA)
Qualified individuals for ESA can receive up to £73.10 weekly or £57.90 so long as they’re under 25. The requirement is you must have paid enough National Insurance contributions in the previous 2-3 years.
Never forget – proper documentation and updating yourself is the key to staying on top of your taxes. It is crucial to keep the above guidelines in mind the next time you go out to work so you can start planning for your next tax payment in advance.