Tax guide for self-employed Driving Instructors
Self-assessment tax return help for Driving Instructors
This guide sets out the basics for getting your tax affairs in order and filling in your self-assessment tax return.
Registering with HM Revenue & Customs
You need to be registered with HMRC, If not yet registered or newly self-employed, click HERE.
HMRC will send you a confirmation of registration and provide you with your unique taxpayer’s reference, or UTR. This is a unique reference for your tax affairs. You should quote this on any payments you make or any correspondence to HMRC. They will also ask you for this or your National Insurance number if you ever phone them with a query.
The basics of the tax return
A tax return should disclose your taxable income and gains for the relevant tax year. A tax year starts on 6 April and ends on the following 5 April. Please note that ALL your taxable income and gains must be declared on a tax return – even if they have been taxed before you received them (or ‘taxed at source’), such as employment income or bank interest.
Following the end of the tax year, tax returns must be submitted to HMRC. You can submit your return on paper; this must be done by 31 October following the end of the tax year. Alternatively, you may choose to file your return online, in which case the deadline is extended to the 31 January, following the end of the tax year.
Failing to file your return on time will result in an automatic £100 fine, with further penalties depending on the length of delay.
Paying any tax due
Any tax you owe must be paid by or on the 31 January following the end of the tax year.
As mentioned above, income that has already been taxed must still be declared on your tax return. However, the tax already paid at source will be deducted before arriving at the final tax bill.
Be aware that if your tax liability is over £1,000 or not much of your tax is collected at source, you may be required to make an instalment for next year’s tax as well on 31 January and a second instalment on the following 31 July.
There are varying lengths that a Driving Instructor should keep its documents for, for different areas of tax. However, six years is the longest of them all, so it would be best practice to stick to this time frame.
At the moment, HMRC is not very precise about the format of records a business should keep, whether that be a manual cashbook or sophisticated bookkeeping programme. Although with the introduction of MTD (making tax digital), in the coming years and especially for VAT registered businesses from 1 April 2019 the use of cloud accounting software may become more preferable.
Other sources of income
If you have other sources of income, these are the sort of items you need to keep:
• Bank interest certificates • Dividend vouchers • Portfolio statements • P45s/ P60s from pension providers or employers • P9Ds/ P11Ds from employers • Notifications regarding any state aid such as the State Pension or Job Seeker’s Allowance • Paperwork regarding pension schemes being paid into • Receipts for donations made under the Gift Aid scheme • Paperwork for any assets you have sold, such as shares, land etc. • Income and expense receipts for any land or property you received income from- in the UK or overseas
This list is not exhaustive, but hopefully it gives you a good idea of the type of paperwork it is necessary for you to keep and which will be required for the completion of your tax return.
Claiming business expenses
There are many expenses that can be claimed against taxable income. Everyone runs their business in a different way and they will usually incur some expenditure that is particular to them.
The following list is not exhaustive but gives an indication of the general expenses that can be claimed by a driving instructor:
Vehicle running costs
Repairs & Maintenance
Road tax, insurance & MOT
Parking & Tolls
Other expenses include
Telephone & Mobile Phone
Postage & stationery
Use of home as office (See notes below)
Work clothes (See notes below)
Continuing professional training (But not initial training fees to become an instructor. See note below)
Bank charges on business account
Wages (See notes below)
Other sundry items
If you have expenses that are not shown on this list, you may still be able to claim them.
Keep a full record of ALL expenses and discuss them with your accountant. They may be tax deductible.
Please Note: If you use your vehicle for your own personal use then you need to factor this in when any expenses are claimed. For example, if you calculate that you use your vehicle 20% of the time for personal or family use, then you would need to reduce any relevant vehicle running expenses by 20%.
If the car has dual controls it may qualify for 100% Annual Investment Allowance claim, if this is the case you can claim up to the full cost of the price in the year of purchase – adjusted for reasonable private use. If the car does not have dual controls you may still be able to claim 100% First Year Allowance if the car’s CO2 emissions are up to and including 110 g/km. Above this level the claim will be 18% Writing Down Allowance per year. In the unlikely event that the CO2 emissions are greater than 160 g/km you will be restricted to 8% Writing Down Allowance per year.
All claims need to be adjusted for private use as appropriate.
If you have any other assets that you bought specifically for your work you may also be able to claim capital allowances for them too.
NOTES ON EXPENSES
Use of home
If you work from home, you will be able to put through a portion of the running costs of your home. It could include household bills such as gas, electricity, telephone, broadband, rent, council tax, mortgage interest, insurance, etc.
If your clothing is protective or it has a business logo embroidered on it, the cost of buying these items could be claimed. Also, cleaning costs may be shown in the accounts. The clothing must be clearly identifiable as work wear and is ‘wholly and exclusively’ used for the business. You would not wear it other than for work. However, if you bought ordinary, everyday clothing from, say, M & S the answer is "No". Under current legislation these items are regarded as having a dual purpose, i.e., you could wear them outside of work and no one would be able to identify that they are your work clothes. They would therefore not be classed as tax-deductible expenses.
There are harsh rules about what training costs can be offset for tax purposes if they are for the proprietor. Unfortunately, the initial training fees to become a qualified Driving Instructor are not allowable.
If you transfer a personal, pre-owned asset to the business, you may be able to obtain tax relief for it.
Family wages has long been an area of abuse by individuals, so the rules regarding wages paid to family members have tightened. You may still pay family members wages, but they must actually be doing some work for the business and their wages be physically paid – i.e. HMRC will want to see a bank payment or receipt of cash paid to them. Furthermore, you should still consider national minimum wage rules, young workers regulations, and tax and national insurance implications etc.
Starting out in business and completing your first tax return can be pretty daunting. As you can see, from registration with HMRC through to completing your tax return can be a lengthy and complex area.
A tax advisor or accountant could deal with all this process for you, and although you do not need either of these to deal with your own affairs, there can be real benefits in using a professional.
Firstly, a professional should ensure that you comply with legislation and HMRC guidance. Cutting corners can save you money in the short-term but could be costly in the long-term if you were to incur penalties for one reason or another.
Furthermore, a good tax professional should be able to save you tax. They may review your affairs and identify areas in which changes can be made in order for your affairs to become more tax efficient.
Teesside Financial Accountants – Our service
The thought of having to complete a Tax Return can be quite a daunting task as well as time consuming. For just £300.00 (after tax relief £240.00) we can prepare and file your Tax Return for you without any fuss. Simply provide us with the information we ask for then leave the rest to us.
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayers’ circumstances do vary and if you feel that the information provided is beneficial it is important that you seek professional advice before implementing. If you take, or do not take action as a result of reading this article, we will accept no responsibility for any financial loss incurred.