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Be aware of the tax pitfalls when leaving the taxi trade says accountant
During these uncertain times, some cabbies have decided to hang up their cab keys either on a temporary or full-time basis. Whether it is to start a new career or pursue one that they were already involved in, these options may seem more viable now.
There are however some pitfalls, especially around tax, that accountants are warning cabbies they should be mindful of. One such risk is selling business assets such as your taxi to raise cash.
Jason Short, a taxi driver and accountant at Short and Sons Accountants, highlighted the risk to cabbies saying: “If you own your vehicle, you will notice that it gets depreciated every year by your Accountant. Depending on how much depreciation has been used in your Accounts can have a significant effect on tax. For example, I own a TX4, which I know has been entirely written off in my accounts. If I were to sell it today for £10,000, technically it would all be profit because I have claimed the write down in prior years. At 20% tax and 9%, national insurance that's a £2,900 tax bill that will need to be paid on top of SEISS payments received and any other income.
“If your plan is to take early retirement and live off savings until pension kicks in, this information could make a significant difference. Usually, this wouldn't happen because of buying another vehicle. Obviously, if you do happen to be selling something for £30,000, the tax numbers become quite large!”
Jason added: “Someone I spoke to was wishing to sell their vehicle and work somewhere else until next year. This is all okay, but this may trigger the high tax bill outlined above, and then end up buying another vehicle next year, which doesn't help you claiming tax back that you incurred this year. In this instance, if you were to sell a written off cab in the accounts for £30,000, it would incur an £8,700 tax bill at 29%. If then a vehicle is bought for £45,000 next year, the £8,700 would still need to be settled!”
It is also worth noting that the figures above are assuming basic rate tax, if you happen to be PAYE or receive income from elsewhere with the higher rate tax of 40% and 2% NI, the above example is even more painful.
