Thousands of self-employed taxi drivers are now operating under HMRC’s new Making Tax Digital rules, with more to join over next two years
- Perry Richardson
- 2 hours ago
- 3 min read
Making Tax Digital (MTD) for Income Tax is now in full swing for many self-employed taxi drivers, marking one of the biggest changes to personal tax administration in decades.
Drivers turning over more than £50,000 from self-employed taxi work are now legally required to keep digital records and submit quarterly updates to HM Revenue & Customs (HMRC), with the first submission due in days by 7 August 2026. The scheme will expand to drivers earning more than £30,000 from April 2027 and more than £20,000 from April 2028, bringing the vast majority of full-time taxi drivers into scope.
For many in the trade, the biggest adjustment is not the amount of tax they pay, but how often they must update HMRC and the way financial records are maintained throughout the year.
Unlike the annual Self Assessment tax return, quarterly updates are intended to provide HMRC with a snapshot of business income and allowable expenses every three months. The updates are submitted through compatible accounting software rather than directly through HMRC’s online Self Assessment service.
Importantly, quarterly updates are not tax returns and they do not create an immediate tax bill. Drivers will still complete an end-of-year declaration and pay any tax due by the normal 31 January deadline.
What taxi drivers need to record
The basic information required under Making Tax Digital is already familiar to most self-employed taxi drivers.
Drivers should maintain accurate digital records of their fares and business income, together with allowable business expenses such as fuel or charging costs, vehicle servicing and repairs, insurance, licensing fees, accountancy costs, mobile phone costs where appropriate, airport drop off fees relating to business use and other eligible operating expenses.
The emphasis under MTD is that these records must be maintained digitally rather than being written in notebooks or reconstructed months later from paper receipts.
Choosing accounting software
One of the biggest decisions for drivers is selecting compatible software.
There are now numerous MTD-compatible products aimed at sole traders, ranging from simple mobile apps through to comprehensive accounting packages. Some automatically connect to business bank accounts, categorise transactions and generate quarterly updates ready for submission.
Many accountants also offer cloud bookkeeping systems as part of their annual service, allowing drivers to photograph receipts, record expenses on the move and leave the quarterly submissions to their accountant.
For drivers who already use digital bookkeeping software, moving to Making Tax Digital may require little more than activating the MTD function.
What will it cost?
Software costs vary considerably.
Basic MTD-compatible software can cost only a few pounds each month, while more comprehensive packages with invoicing, bank feeds and accountant integration are typically more expensive.
Some drivers may find that the additional subscription cost is offset by the time saved on bookkeeping and the reduced likelihood of errors or missing expenses.
Those already paying an accountant should discuss whether quarterly submissions are included within existing fees or whether additional charges will apply.
Why quarterly updates could benefit drivers
Although the introduction of Making Tax Digital has been met with concern by some self-employed workers because of the increased reporting requirements, there are potential benefits.
Regular bookkeeping means drivers are less likely to spend days sorting paperwork before the January deadline. Keeping records up to date throughout the year can also make it easier to identify business trends, monitor profitability and prepare for future tax liabilities.
Each quarterly update also provides an estimated view of the driver’s tax position, helping avoid unexpected tax bills at the end of the year.
For drivers whose income fluctuates due to seasonal demand, changing passenger numbers or periods away from work, having a clearer picture of their financial position throughout the year could improve cash flow planning.
Don’t leave everything until January
Perhaps the biggest change under Making Tax Digital is behavioural rather than technical.
Instead of viewing tax as a once-a-year task, drivers are not just encouraged, but now required, to update their records regularly. Setting aside a few minutes each week to reconcile income and photograph receipts rather than attempting to rebuild an entire year’s accounts at the last minute is a big change for many that has worked in the industry for decades.
For taxi drivers already using digital payment systems, business bank accounts and smartphone apps to manage their work, Making Tax Digital is likely to become another routine part of running a modern taxi business.
With the scheme expanding over the next two years, drivers not yet affected may wish to begin using compatible software now. Becoming familiar with digital record keeping before it becomes mandatory could make the eventual transition significantly smoother.
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