Making Tax Digital for Taxi Drivers: What You Need to Know?

Making Tax Digital for Income Tax (MTD for ITSA) is one of the biggest changes to UK tax reporting in decades, and if you’re a taxi driver, it applies to you, too.

Whether you’re self-employed, working through a private hire platform, or managing your own bookings, the way you record income and report to HMRC is changing.

The good news is, once you understand what’s required, MTD can actually make your life easier – especially if you’re using the right tools.

This guide breaks down everything you need to know about MTD for taxi drivers, including how to stay compliant without adding stress to your already busy schedule.

Key points

• MTD applies to self-employed taxi drivers 🚕
  If your annual income exceeds the government thresholds, you must keep digital records and submit tax updates to HMRC. Even if you’re below the threshold, preparing early helps avoid surprises and makes future compliance easier.
• Digital records and quarterly updates simplify tax management 💻
  Recording income and expenses digitally, including cash fares, tips, and platform fees, keeps your finances organised. Submitting quarterly summaries prevents end-of-year stress and reduces the risk of errors.
• You can claim all allowable business expenses to reduce your tax bill 📉
  Taxi drivers can claim costs such as fuel or electricity, servicing, insurance, licensing fees, and platform commissions. Accurate tracking ensures you only pay tax on your actual profit.
• Non-compliance carries penalties ⚠️
  HMRC uses a points-based system for late submissions. Staying on top of records and deadlines is essential to avoiding unnecessary costs.

What is Making Tax Digital?

Making Tax Digital is a UK government initiative designed to modernise the tax system. Under MTD rules, you must keep digital records and submit tax returns through HMRC-recognised software.

The aim is to make tax more accurate, reduce errors, and help you stay on top of what you owe throughout the year rather than facing one big surprise bill.

How does MTD affect taxi drivers?

For taxi drivers, the shift to MTD is particularly important. With a mix of cash and app payments, variable income, and ongoing expenses like fuel and maintenance, staying organised can be difficult without the right system in place.

MTD is designed to solve that – but only if you understand how it applies to your work.

The basics of MTD include:

• Keeping digital records of all income, including cash, card, and app-based fares, as well as tips
• Recording expenses as they happen, such as fuel, servicing, insurance, and platform fees
• Using MTD-compatible software that connects directly to HMRC

This is a significant shift from traditional bookkeeping, where many drivers would track everything manually and deal with it at the end of the tax year.

For self-employed taxi drivers, MTD guidelines fall under MTD for ITSA.

It introduces a new way of reporting your income to HMRC, replacing the traditional once-a-year Self Assessment with a more structured system.

What are ‘digital records’?

Digital records are electronic versions of your business finances. Keep in mind that these records must be stored in a format that can be linked directly to MTD-compatible software.

You can’t rely on basic spreadsheets unless they’re connected to a system that can submit data to HMRC.

In practice, digital records are usually created automatically when you use the right tools. Transactions are imported from your bank account, categorised for you, and stored securely in one place.

This not only keeps you compliant with MTD, but also gives you a clear, real-time view of your finances.

What are quarterly updates?

Quarterly updates are summaries of your income and expenses, and they need to be submitted every three months. They don’t finalise your tax bill, but they keep both you and HMRC informed throughout the year.

They are due on the 7th every three months. Here’s a quick look at the quarters and how they work:

What is the final declaration?

The final declaration is the last step in the MTD process. It brings together all your income and expenses for the full tax year, confirms that everything is accurate, and finalises your total tax bill.

It’s essentially where you make any final adjustments and ensure nothing has been missed – so HMRC has a complete and correct picture of your finances before calculating what you owe.

When does MTD for taxi drivers start?

Your MTD starting year depends on your annual qualifying income. Here’s how the rollout for MTD for ITSA works:

• April 2026: Applies to those with an annual self-employed income over £50,000
• April 2027: Applies to those with an annual self-employed income over £30,000
• April 2028: Applies to those with an annual self-employed income over £20,000

Even if you’re below the threshold, preparing early is a smart move. MTD is expected to expand further, and adopting digital processes now can make compliance much easier later.

What expenses can taxi drivers claim?

One of the biggest advantages of keeping proper digital records is making sure you can claim every allowable expense. This directly reduces your taxable profit because you pay tax only on what you actually earn, not on what you spend to run your business.

Here’s a closer look at what you can typically claim:

1. Fuel or electricity

Whether you drive a petrol, diesel, hybrid, or electric vehicle, the cost of powering your car is one of your biggest expenses. You can claim fuel or electricity used for business journeys.

If you also use your car for personal affairs, you can claim only the business portion.

2. Vehicle servicing and repairs

Regular maintenance is essential to keeping your vehicle safe and roadworthy. This includes servicing, oil changes, brake repairs, and general mechanical fixes. Any work needed to keep your car operating can usually be claimed.

3. Tyres and parts

Tyres wear out quickly with high mileage, and replacements are a common cost for taxi drivers. You can also claim other necessary parts, such as batteries, wipers, or bulbs, as long as they’re for business use.

4. Insurance

Taxi insurance is a legal requirement and often more expensive than standard car insurance. You can claim the full cost if the vehicle is used solely for work, or a proportion if it’s used for personal tasks too.

5. Road tax and licensing fees

To operate legally, you’ll need to pay road tax and obtain the appropriate taxi or private hire licence from your local authority. These are essential business costs and are fully claimable.

6. Vehicle cleaning

Keeping your car clean is part of providing a professional service. Costs for car washes, valeting, and interior cleaning can all be claimed, as they relate directly to your work.

7. Phone bills

If you use your phone for work – for example, for managing bookings, using navigation apps, or communicating with customers – you can claim the business portion of your phone bill. If it’s a personal phone, you’ll need to estimate the percentage used for work.

8. Booking or platform fees

If you work through ride-hailing apps or booking platforms, you’ll usually pay commission or service fees. These are a direct cost of earning your income and can be fully claimed.

9. Parking and tolls

Any parking fees or toll charges incurred while working can be claimed. This includes waiting at ranks, airport pickups, or city toll roads – as long as the cost relates to a business journey.

What happens if you don’t comply with MTD?

Failing to follow MTD rules can lead to penalties, so it’s important to stay organised. HMRC is introducing a points-based system for late or missed submissions.

It works like this:

• Penalty points for missed deadlines: Each quarterly update or final declaration submitted late adds a point to your record.
• Fines once you reach a threshold: Accumulate too many points, and HMRC may issue a financial penalty.
• Points expire over time: If you return to compliance, points will eventually drop off your record.

For taxi drivers, income is typically frequent and variable; keeping everything up to date is key to avoiding unnecessary fines. This is where good software can make the most impact.

With the right system in place, everything is recorded as you go, which helps you stay compliant with MTD while keeping your tax bill as low as possible.

How to choose the right MTD software

One of the easiest ways to follow all the new rules is to use software that handles the heavy lifting for you. When choosing MTD-compatible software, look for these features:

• Automatic income and expense tracking: Your fares, tips, and costs should be recorded without manual entry.
• Direct connection to HMRC: The software must submit your quarterly updates and final declaration digitally.
• Ease of use: Choose a system designed for self-employed individuals, not accountants, so it’s simple and intuitive.
• Mobile-friendly features: Being able to record expenses on the go saves time and ensures nothing is missed.
• Tax insights and alerts: The software should give you real-time estimates of how much tax you owe and remind you of upcoming deadlines.

How ANNA helps taxi drivers stay MTD-ready – for FREE

Staying MTD-ready shouldn’t mean more admin, more stress, or more time spent on bookkeeping.

ANNA gives taxi drivers a simple, hands-off way to stay compliant with MTD, so you can focus on driving, earning, and running your business, while everything else takes care of itself.

Even better, MTD support is free for both new and existing ANNA customers. And if you’ve already submitted your 2025/26 Self Assessment using another platform, it’s not a problem – ANNA will refund the filing cost when you open an account.

Here’s what ANNA can also help you with:

• Easy MTD quarterly updates: Your records are prepared automatically and ready to submit each quarter, so deadlines are never stressful.
• Year-end Self Assessment filing: You can submit your final declaration directly to HMRC from the app.
• 2025/26 Self Assessment filed for free: Once you connect your HMRC account to ANNA, you’ll unlock this offer.
• Auto Accountant bookkeeping: Transactions are categorised automatically, keeping your records organised without extra effort.
• 24/7 Auto Accountant support: Get jargon-free answers to your tax questions anytime, directly in the app.
• Automatic VAT calculations and filing: If you’re VAT-registered, your VAT return is calculated and filed automatically.
• Simple invoicing with card payments: Create seamless invoices and get paid faster.
• Personalised tax calendar: Don’t worry about missing important deadlines.
• Payroll for one employee: Automated PAYE and National Insurance calculations make sure your payroll runs smoothly.

With ANNA, Making Tax Digital doesn’t have to be complicated. Your records are kept up to date, submissions are prepared automatically, and support is always at hand, 24/7.

So try ANNA today, and drive with confidence while your admin is taken care of in the background.