COST, STRESS AND CONFUSION: Taxi drivers warn new HMRC digital tax system could drive more out of the trade

A major change to the way self-employed people report their revenue to HMRC is set to arrive next year, and taxi drivers are warning it could add extra costs, confusion and stress at a time when the trade is already stretched.

The new system, known as Making Tax Digital (MTD), is being phased in from April 2026 and will affect anyone with turnover of more than £50,000 from self-employment or rental income, including cab drivers operating as sole traders.

For most in the trade, tax time already comes with enough paperwork. But under MTD, it will no longer be a single tax return once a year. Instead, drivers will have to report their income and expenses to HMRC every three months using commercial accounting software. At the end of the tax year, there will still be a final return due by 31 January, meaning at least five separate submissions each year.

For many taxi drivers, that feels like more red tape and admin which keeps them away from the cab earning.

One London cabbie talking exclusively to TaxiPoint said: “I’ve been self-employed for over twenty years. I know how to keep my books and file my return, but this new digital thing feels like it’s being made for accountants and tech firms, not for working people like us. We’re on the road all day, not sitting behind a computer. If they fine you for getting it wrong or missing a date, that could be the last straw for some.”

What Making Tax Digital means

Making Tax Digital is HMRC’s long-term plan to move all tax administration to an online system. The idea is that by keeping and submitting digital records, errors will be reduced and tax reporting will become more efficient. In practice, it means every self-employed worker will need to use government-approved software to track earnings and costs, send quarterly updates to HMRC and file the final declaration.

According to HMRC, this will make life simpler by keeping everything in one place, but drivers fear the opposite will be true. The system will require software that can connect directly to HMRC’s system or “bridging software” that can upload figures from a spreadsheet. Both options involve paying for software licences (although there are some basic free options available), learning how to use them, and staying on top of submission deadlines throughout the year.

“Another layer of admin we don’t need”

Many taxi drivers already manage their own books using simple spreadsheets, notebooks or paper records. For years, that has been enough to record takings, fuel receipts and maintenance costs before filing a self-assessment return online. The new rules will make those methods obsolete.

“It’s just another layer of admin we don’t need,” said a Manchester taxi driver. “We already deal with commission fees, licensing costs, fuel prices, insurance and everything else. Now we’re being told we have to pay for special software and upload figures every three months or risk fines.”

Under the MTD penalty system, missing quarterly submissions can lead to penalty points. Four points trigger a fine, and failing to submit for a whole year could mean a £400 penalty. While HMRC says there will be no fines for genuine mistakes that are later corrected, some drivers remain sceptical.

The concern is seen to be higher among older drivers who are less comfortable with technology. Some say they may retire early or move to PAYE work to avoid the hassle. Others fear that digital reporting could make it easier for HMRC to scrutinise minor discrepancies, leading to more investigations, and more time away from earning.

Software uncertainty adds to confusion

Another issue is that much of the MTD-compatible software is still being developed. The HMRC website lists approved products, but not all of them include the same functions. Some only handle quarterly updates, while others don’t connect properly to spreadsheets.

That means drivers will need to research and choose carefully, or risk paying for software that doesn’t do everything required.

Some drivers may choose “bridging software”, which allows data from spreadsheets to be uploaded directly to HMRC. However, that won’t cover the final annual tax return, meaning they will still need another type of software for that stage.

Impact on the trade

The change comes at a difficult time for the taxi and private hire trade. Many drivers are still recovering from the financial impact of the pandemic, while costs such as fuel, vehicle maintenance, and licensing fees have continued to rise. The concern is that the introduction of MTD could be the tipping point for some, particularly those already considering retirement or career changes.

A Birmingham based private hire driver told TaxiPoint: “We’re not against progress, but this feels like red tape for the sake of it. We should be out earning, not learning new software or worrying about quarterly deadlines. If the Government wants more people to go digital, they need to make it simple and free. Otherwise, some of us will just hang up the keys.”

There are also concerns that smaller income drivers will face a heavier burden compared to those with accountants or able to work longer hours. While full-time drivers may be able to find the extra money and time to make the change now, part-time drivers will eventually have to shoulder the full cost themselves on what is already a tight profit margin.

Possible support and exemptions

Some drivers could be exempt if they are “digitally excluded” – for example, if they cannot use a computer or access the internet due to disability or location. However, exemptions are expected to be rare, and most drivers will be expected to comply.

Drivers earning between £30,000 and £50,000 will not join MTD until 2027, with a further rollout planned in 2028 for those earning £20,000 or more. Those below the threshold will continue using the standard self-assessment system for now.

Accountants advise drivers to start preparing early. That includes keeping a clean set of digital records, setting up a separate business bank account to make tracking easier, and testing bookkeeping software before the system becomes mandatory.

What drivers can do now

For many taxi drivers, the best approach may be to trial bookkeeping software now rather than wait until April 2026. Free or low-cost options can help get used to digital record keeping without immediate pressure.

It’s also important to stay informed. HMRC will release more details in the coming months, including updates to the list of approved software. Trade bodies and unions may also offer workshops or training to help drivers understand their responsibilities.

But the underlying feeling across the trade remains one of frustration. After years of financial uncertainty, licensing pressures and vehicle transition costs, the introduction of MTD feels like yet another hurdle.

“Every time something changes, it seems to hit the small self-employed hardest,” added the taxi driver from London. “We don’t have HR departments or accountants on call. We’re the ones who have to figure it out. The Government talks about cutting red tape, but for us, it’s just getting thicker.”

Unless HMRC provides clearer guidance and real support, many fear MTD could end up driving even more experienced cabbies away from the trade altogether.