Tax for a taxi business: what owners and drivers pay

Here are the taxes a UK taxi or private hire firm and its drivers pay in the 2026 to 2027 tax year, with the rates taken from HMRC's own pages. It covers sole traders, limited companies, VAT and the tax check you need to renew a licence. Income tax bands are different in Scotland, so check the Scottish rates if you live there, and get an accountant who knows the trade for your own figures.

What tax does a taxi business pay?

Which taxes you pay depends on how the firm is set up and whether you employ anyone. Here's the map:

If you're still choosing between sole trader and company, our guide to registering a taxi company compares the two.

How much income tax and National Insurance do self-employed drivers pay?

Self-employed drivers and sole trader owners pay income tax and Class 4 National Insurance on their profits: fares in, less allowable expenses. Both are paid through Self Assessment.

The Personal Allowance goes down by £1 for every £2 of adjusted net income above £100,000. Class 2 National Insurance is treated as paid if your profits are £7,105 or more, and below that you can choose to pay voluntary Class 2 at £3.65 a week to protect your National Insurance record.

Example. A self-employed private hire driver in England makes £30,000 profit in 2026 to 2027.

• Income tax: (£30,000 less £12,570) × 20% = £17,430 × 20% = £3,486
• Class 4 National Insurance: £17,430 × 6% = £1,045.80
• Total: £3,486 + £1,045.80 = £4,531.80, about 15% of the profit

When do you file a Self Assessment return and pay?

Register for Self Assessment by 5 October after the end of the tax year you started. For the 2025 to 2026 tax year, HMRC must receive a paper return by 31 October 2026 or an online return by 31 January 2027, and the tax is due by 31 January 2027.

Once you're established, HMRC asks for payments on account: two payments, by 31 January and 31 July, each half of last year's bill. You don't make them if last year's bill was under £1,000, or if more than 80% of your tax was already taken at source.

Making Tax Digital for Income Tax is arriving in stages, based on your qualifying income from self-employment and property:

What expenses can taxi drivers and owners claim?

GOV.UK lists vehicle insurance, repairs and servicing, fuel, parking, hire charges, vehicle tax and breakdown cover as allowable car expenses for the self-employed. You can't claim non-business driving, fines, or travel between home and work.

Instead of actual car costs, you can use simplified expenses: a flat rate for each business mile.

Example. A private hire driver covers 15,000 business miles in his saloon: 10,000 × 55p = £5,500, plus 5,000 × 25p = £1,250, so he claims £6,750 in place of his actual running costs.

Three limits apply. Simplified expenses can't be used for cars designed for commercial use, which GOV.UK says includes black cabs and hackney carriages. You can't use them for a vehicle you've already claimed capital allowances on. And once you use the flat rate for a vehicle, you must keep using it for as long as that vehicle is in the business.

If you claim actual costs, the car itself goes through capital allowances. Cars can't use the £1 million Annual Investment Allowance. For a car bought since April 2021, a new car with zero CO2 emissions gets a 100% first-year allowance, a car at 50g/km or less gets 14% a year (18% before April 2026), and anything above 50g/km gets 6% a year. HMRC's Capital Allowances Manual says not to treat traditional "London black cab" type hackney carriages as cars, so the car rules don't apply to them.

What does a limited company taxi firm pay?

A limited company pays corporation tax on its profits. The rate is 19% on profits of £50,000 or less and 25% on profits over £250,000, with Marginal Relief in between.

Those limits shrink if you run more than one company. HMRC divides them by the number of associated companies plus one for your own company, so a company with three associated companies divides by 4 and uses £12,500 and £62,500. They're also cut in proportion for an accounting period shorter than 12 months.

People who take money out of the company may pay tax on it too, as salary or as dividends. If you pay anyone, yourself included as the only director, GOV.UK says you must register as an employer before the first payday.

Staff costs for 2026 to 2027:

• Employer National Insurance is 15% on earnings above £5,000 a year (£96 a week).
• The National Living Wage is £12.71 an hour for workers aged 21 and over from 1 April 2026.
• An eligible employer can claim the Employment Allowance, worth up to £10,500 a year off its employer National Insurance bill.
• Company records must be kept for 6 years from the end of the last company financial year they relate to.

When does a taxi business have to register for VAT?

You must register for VAT if your total taxable turnover for the last 12 months goes over £90,000, the VAT registration threshold, or you expect it to pass £90,000 in the next 30 days. You then have 30 days from the end of the month you went over to register. Once registered, you can choose to cancel if taxable turnover falls below £88,000.

HMRC's Notice 700/25 covers the taxi and private hire trade:

• Fares are standard-rated, and so are charges for baggage and waiting time. Tips that passengers choose to give are outside the scope of VAT.
• Other income counts too: referral fees from other firms, charges to drivers for fuel, vehicle or radio rental, and admin charges to account customers.
• Owner drivers count the full amount they're paid, adding back anything the firm deducts first, such as vehicle and radio rental or agency charges.

Once you're registered, you charge VAT on the journeys you supply yourself. Either add VAT to your fares or keep the price and accept a smaller margin, and decide before you print a price list.

Agent or principal: whose fares are they?

For an operator, the big VAT question is whether you sell the journey or sell a booking service to your drivers. Notice 700/25 says that if all your drivers are employees, you're a principal and account for VAT on the full fare. With self-employed drivers you may be acting as their agent, and that depends on your written or spoken contracts with them and on how the business actually works. As an agent you account for VAT on what you charge the drivers and on admin charges to account customers, and VAT on the fares is only due if the driver himself is registered.

The law on contracts outside London is now settled. In D.E.L.T.A. Merseyside Ltd v Uber Britannia Ltd [2025] UKSC 31, decided on 29 July 2025, the Supreme Court held that the 1976 Act doesn't require an operator outside London to contract with passengers as principal. The court noted that London has its own regime, which the Divisional Court has read as requiring an operator to take every booking as principal. Under Notice 700/25 a principal accounts for VAT on the full fare, so a VAT-registered London operator does; outside London an operator can keep the agency model, and then accounts for VAT on its charges to drivers.

One scheme has closed. From 2 January 2026, taxi and private hire journeys can't be put through the Tour Operators' Margin Scheme unless they're supplied with other travel services, after HMRC lost HMRC v Bolt [2025] UKUT 100 (TCC) in the Upper Tribunal and the government changed the law. HMRC's policy paper says journeys a driver supplies directly to a passenger aren't affected. For past periods, the Court of Appeal then allowed HMRC's appeal on 12 June 2026 ([2026] EWCA Civ 720), holding that the scheme doesn't cover Bolt's on-demand minicab journeys.

If you register, look at the Flat Rate Scheme too. The flat rate for "transport or storage, including couriers, freight, removals and taxis" is 10% of your total turnover, the full amount customers pay you, and you can join with taxable turnover of £150,000 or less. A limited cost trader pays 16.5% instead.

What is the HMRC tax check for taxi licences?

The tax check is a short HMRC process you complete before the council will renew a taxi driver, private hire driver or operator licence. It has applied in England and Wales since 4 April 2022, and in Scotland and Northern Ireland since 2 October 2023.

You need one when you:

• renew a licence
• apply for the same type of licence you held before, if it stopped being valid less than a year ago
• apply for the same type of licence you already hold with another licensing authority

You finish with a 9-character tax check code to give to the council. Codes expire after 120 days, so time the check close to your application. You don't need one for your first licence of that type. The rule covers individuals, companies and partnerships.

Which records does HMRC expect you to keep?

Self-employed drivers and owners must keep their records for at least 5 years after the 31 January submission deadline for the tax year they relate to. For a taxi firm, the booking list is part of that: outside London, section 56 of the Local Government (Miscellaneous Provisions) Act 1976 makes an operator record every booking before the journey starts, and the statutory standards suggest keeping those records for at least six months.

Dispatch AI is booking and dispatch software for taxi and private hire firms, and whichever system you use, keep its booking records with your accounts, because they show where your income came from. The cost to start a taxi business guide lists the fees you can claim as expenses, and our guide to taxi firm profit margins shows what's left after them.