Whether you are already working as an Uber driver or you are planning to be one, bear in mind that you’d be classified as a self-employed person. This is because you won’t be considered an Uber employee rather you’d be an Uber driver-partner or an independent contractor. So, like all other self-employed people, you need to pay taxes and comply with the HMRC’s tax rules as an Uber driver. Unless you are an accountancy expert, you may face difficulties to work out taxes. Therefore, in this post, we’ll discuss how do Uber drivers pay taxes in the UK?
Let’s find out!
How Do Uber Drivers Pay Taxes in the UK?
If you are an Uber diver or going to set your foot as a one, you need to know what taxes you are obliged to pay and maintain. Here is how Uber drivers pay taxes in the UK:
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Register as Self Employed
Being self-employed as an Uber Driver, you first need to register for self-assessment and Class 2 and 4 National Insurance when you start working. Like all self-employed professionals, you will also be going to report your earnings via a self-assessment and need to submit a personal tax return by 31st January each year.
Once you register for it, you’ll get a UTR number (10 digit taxpayer reference number). This number is mandatory for every taxpayer in the UK, as this number helps HMRC to process tax returns efficiently and accurately. It also makes sure that the taxpayer is paying taxes in a timely manner and getting back the entitled money as a refund.
Submit Tax Returns
Uber drivers are required to submit their tax returns by 31st January (if submitting online) and by 31st October (if submitting via post). Let’s make it easy with an example, the submission of the tax returns for a tax year (6th April 2021- 5th April 2022) will be by 31st January 2023 (for online submission) and 31st October (for paper return).
How Much Do You Need to Pay Tax as an Uber Driver?
Fortunately, as an Uber driver, you don’t need to pay taxes on all your income, rather you only need to pay taxes on your profit. It means you can take off your business expenses from your total earnings/income. The taxes you are liable to pay will be at the same rate as a regular self-employed worker.
So, as a self-employed, you’re entitled to the standard tax-free personal allowance as an employed person. Currently, the standard tax-free personal allowance is £12,570 (2021-22). It is the tax-free amount you earn, before paying income tax.
Being an Uber driver (self-employed person), you pay income tax on your trading profit only (not on the total income). To calculate your trading profit, you need to subtract your business expenses from the total income. The rate of income tax for trading profit is the same as for a person who’s employed. Here is the table that shows the tax rate as per your income:
Note that, you as an Uber driver doesn’t pay a single income tax rate on your trading profit. Rather you pay the appropriate rate of trading profit that fall under each bracket (band). Let’s say if your trading profit is £50,370 in 2020-22, you pay:
- No tax for the initial £12,570 (personal allowance) £50,270- £12,570= £37,700
- 20% Income tax for the next £37,700
- 40% Income tax on the remaining £100.
Here is the table that shows the rate of income tax on the trading profit in the bracket.
Note that these rates vary in Wales and Scotland.
National Insurance Rates for Uber Drivers
You’d be considered a sole trader as an Uber driver, so the National Insurance you need to pay will be different from that of the normal employees. So, you will be paying:
- £3.05 a week Class 2 national insurance for the profit of or over £6,515 (2021-22) per annum
- Class 4 NIC for the profit of or over £9,568 (2021-22) a year. You need to pay NIC at the rate of 9% if your profit is between the lower and upper-profit limit (£9,568-£50,270). People earning a profit over the upper-profit limit (£50,270) need to pay 2%.
What are the Deductible Expenses of an Uber Driver?
The vehicle is the biggest expense of the Uber drivers. So you can deduct car-related expenses that are exclusively used for business purposes. However, you need to provide valid evidence to HMRC that it is only used for business purposes.
Here, HMRC might ask you whether you have used your car for personal travel for at least some time. Therefore, you need to have detailed records for it. Aside from the mileage deductions, here is the list of expenses that you can deduct:
- Phone related expenses (excluding any personal use)
- The deductions made by Uber from your earnings
- The cost incurred to get a private car hire licence
- Water or snacks you hand out to passengers
- The cost of any training
- Bank charges
- Car cleaning and valeting costs
- Home as office deduction
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Quick Wrap Up
Hope this post helps you figure out: how do Uber drivers pay taxes in the UK? Since Uber drivers are considered self-employed or sole traders, they need to pay the same taxes and NICs as self-employed businessmen. They need to register for self-assessment and submit returns annually to declare their income. In addition, they have to comply with the HMRC’s tax laws and pay Class 2 and 4 NICs. There are many expenses that they can deduct, so it is crucial to maintain records as proof to HMRC.
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Disclaimer: This blog contains general information about the topic.