As an Uber driver, handling the complexities of tax for self-employment might be challenging. Even if you have accounting knowledge, managing the taxes as a self-employed Uber driver is no small feat that even experienced drivers still experience some problems.
Perhaps the most important thing to know if you’re a Uber driver is that all the responsibility for your taxes falls on you. You must keep track of it and get all the relevant details correct for optimal results.
So, if you’re new to driving for Uber or you’ve been doing it for some time now, tax advice will do you a lot of good and save you a lot of time. Check out this guide which covers everything you need to know about tax as an Uber driver.
Tax Status As an Uber Driver
Before discussing all you need to know about taxes, you should fully understand your tax status as an Uber driver. Uber doesn’t consider its drivers as employees but rather as an independent contractor that provides a service. This is why Uber does not withhold taxes from your payments because Uber drivers are self-employed.
As a self-employed person, you are responsible for paying taxes and National Insurance contributions. Uber drivers are also required to complete a self-assessment tax return form annually due to their self-employed status. However, you should know that you only pay the taxes on your profits and not income so that you can deduct your business expenses from your earnings.
Registering as a Self-Employed Uber Driver
The fastest and easiest way to register that you work for yourself with HMRC is by applying as self-employed. This is a requirement as soon as your income is more than £1,000 in a tax year between 6th April – 5th April. Notice that we said income and not profit as income is all your earnings without deducting the business expenses. Profit is what remains after deducting your business expenses.
It would help if you got registered before the next 5th of October after the end of the tax year when you passed the £1,000 limit. Regardless of if you’re not yet making a considerable profit from Uber, as long as it has passed the £1,000 income threshold, it is compulsory to register with HMRC and complete your tax return. However tough that may be, completing tax returns means you can put down all your expenses and show you have a tax loss. You can then use this for the money you make in the future and save you tax.
During the registration process, there is some necessary information you need, including:
- Date of Birth
- National Insurance Number
- UK Address
- Email address
- Telephone Number
- Description of the Uber business and setup
Step by Step Guide To Registering as Self Employed
- Go to the HMRC website and select the option to register online
- Set up a Government Gateway Account. This will help you manage all your taxes in one place. HMRC will automatically produce a 12-digit number for your login so you can select a password.
- Fill up the HMRC form to register for HMRC taxes. This is where you’ll input the personal details listed above. You will also make a declaration that all the information you’ve provided is accurate.
- Apply and wait for HMRC to review it. It should take about ten days afterwards, which they’ll send you a UTR number assigned to you. This 10-digit number is crucial if you need to provide evidence that you’re a sole trader and enables you to manage your taxes while speaking with HMRC.
- They’ll also send you an activation code as part of the verification for setting up your government gateway account. It could take up to 28 days before you receive this code, but make sure you enter it upon receipt because it expires.
- You are now registered with HMRC and can manage your taxes by declaring your yearly income on the tax return and paying owed taxes biannually.
Alternatively, you can call HMRC on 0300 200 3500 and apply to register. Someone will attend to your request as long as it is within their opening times.
Other business structures you can use to register your Uber business include a Limited Company and Partnership. These may give you better tax-saving opportunities depending on your earnings and protect you better from creditors. However, they have more responsibilities when it comes to reporting, so you’ll need the services of an accountant.
Calculating Your Tax
The national insurance and tax you’ll pay depends on the amount of money remaining after you’ve deducted all the applicable tax allowances and reliefs. Income tax starts at 20% on your entire income if it is over £12,500, and this also applies to Uber drivers. If your income is over £50,000, the income tax increases to 40%.
Class 2 national insurance is paid weekly when earnings are over £6,475, and Class 4 is calculated as 9% on incomes higher than £9,501. HMRC will calculate the amount of tax you’re supposed to pay based on the information you input online.
Tax Deductions for Uber Drivers
Claiming allowable expenses will help you reduce taxes when you’re self-employed. Most of the things you pay for as an Uber driver are tax-deductible, including:
- Car purchase
- Car lease
- Car cleaning & valeting
- Uber fees and deductions
- Accountants’ fees
- Costs associated with the Uber application process
- Bank charges for business bank accounts
- Parking and Tolls charges
- Water & treats you give your drivers
- Mobile phone & data
- Vehicle and public liability insurance
There are some expenses in the above list that you will use personally and for work, such as your mobile phone. In cases like that, you assign a percentage of a business expense. So if you use your phone for work 70% of the time and 30% of the time personally, you can claim 70% of the total bills to use against your taxes. A majority of the things you pay for as an Uber driver are tax write-offs; however, there are some you cannot deduct against your tax like:
- HMRC interest and penalties
- Personal expenses
- Fines and penalties
- Food, except in some specific circumstances
- Training and courses for new skills
Making a Claim For Your Car Against Uber Taxes
Taxes on your Uber car can usually take three forms:
Claim Mileage Allowance For Using Your Personal Car
If you’re using your personal car for Uber, you can claim an amount for the number of miles you use to drive passengers. You need to have a record of the number of miles and claim the set amount by HMRC. It is currently 45p for the first 10,000 miles of driving and 25p after. This method prevents you from claiming car, insurance or service costs.
Purchasing a Car For Uber
If you decide to buy a separate vehicle for Uber, you can claim the business portion of the cost against your taxes. HMRC rules state that you cannot claim the total amount for the car in one tax year. So, you have to claim a portion of the car’s cost based on its emissions using capital allowances at set percentages.
If you decide to use this method, you can also claim for servicing, fuel, repairs and insurance on your vehicle as tax-deductible expenses.
Leasing a Car
If you decide to lease a vehicle for Uber, you can claim the monthly amount for leasing the car against taxes. Other costs you can claim against taxes include servicing, fuel, repairs and insurance. Like the other cases explained above, you can only claim the business part of the car lease and expenses.
Tax Returns For Uber Drivers
It is a requirement to declare your Uber income as part of HMRC’s self-assessment rules. You can do this by submitting a tax return online that declares your income and expenses yearly by 31st January and pays tax biannually before 31st January and 31st July.
Keeping Proper Tax Records
One of the significant difficulties of being self-employed when it comes to tax is keeping all the records and paperwork that supports your income and expenses. You must hold all of this documentation for six years as the law requires. Keeping it protects you if HMRC asks for proof to show how you got the numbers in your tax return.
Records include but are not restricted to cash you collect and receipts for any expenses you want to claim, including detailed bank statements. Follow these steps to have a better record-keeping experience and keep your books complete:
- Get a separate bank account for your Uber business, so all your payments go into one place. This will help you budget your tax bill and have a view of your financials in one glance.
- Take time to sort out your finances and bookkeeping regularly. It will save you a lot of money in the future.
- Use cloud-based storage systems like Dropbox and Google Drive to keep your records and paperwork. This will keep it secure and in one place for six years as required.
Value Added Tax (VAT) Is the tax added to the goods and services consumers buy. However, only businesses that have a turnover of at least £85,000 can register for VAT. Once these businesses register for VAT, they can charge customers and pay HMRC after deducting the VAT due to their suppliers and submit VAT returns quarterly.
Payments on Account
Payments on accounts are advance payments to your tax bills and Class 4 Insurance as a self-employed Uber driver. It is compulsory for you to make these payments twice yearly except your last Self-Assessment tax bill was lower than £1,000. Also, you are not required to pay it if you’ve paid over 80% of your owed tax – this could be through deducted interest savings from your bank or tax code. Payments on accounts help soften your tax bill and reduce the amount you need to pay at the end of the year.
The most important takeaway from this is always to keep records of transactions about your Uber business and always do your research. Regulations are constantly changing; doing your research will keep you updated with any new laws on taxes you should know.