40% tax bracket and wanting to become a taxi driver. Should i get a tax refund?

Question about Tax Refund as a Future Taxi Driver

I’m currently in the 40% tax bracket and planning to become a taxi driver. Should I expect a tax refund? I understand it’s best to consult with an accountant, but I believe my self-assessment form will be fairly straightforward.

For the 2024/2025 financial year, I anticipate earning £87,000 (without any pension contributions). My taxi insurance is £3,000, and I won’t start driving until late April.

When I complete my self-assessment, I estimate that I should be eligible for a tax rebate of approximately £1,200 (£3,000 x 40%). This figure is based on the fact that my actual tax liability would be £84,000 instead of £87,000, which would warrant a tax rebate.

Any feedback on this would be appreciated!

1 Comment

  1. bdadmin

    Reply

    It’s great that you’re thinking about the tax implications of your new career as a taxi driver. However, there are a few things to clarify regarding your calculations.

    1. Taxable Income: If your total income for the year is £87,000, your expenses (like taxi insurance) will reduce your taxable income. In this case, your taxable income would be £87,000 – £3,000 = £84,000.

    2. Tax Liability: In the UK, you pay tax at different rates depending on your income thresholds. For the 2024/2025 tax year, the first £12,570 is tax-free (the personal allowance). The remaining income falls into the tax brackets. Here’s a rough breakdown:

    3. The income between £12,571 and £50,270 is taxed at 20%.
    4. The income between £50,271 and £150,000 is taxed at 40%.

    This means:
    – The first £12,570: 0%
    – The next £37,700 (£50,270 – £12,570): taxed at 20%
    – The remaining income (£84,000 – £50,270 = £33,730): taxed at 40%

    1. Calculating Tax:
    2. £37,700 at 20% = £7,540
    3. £33,730 at 40% = £13,492

    4. Total tax liability = £7,540 + £13,492 = £21,032

    5. Tax Rebate Calculation: If you have had taxes withheld or overpaid throughout the year, you might get a rebate. However, the £1,200 figure you mentioned assumes that you will get back 40% of your insurance cost. But the rebate you might receive would depend not solely on your expenses but on your total tax paid versus your tax liability.

    6. Self-Assessment: Since you’ll be declaring your self-employed income and expenses, it’s wise to keep detailed records of all expenses related to your taxi business, as they will reduce your taxable income.

    Given your situation, it’s best to consult with an accountant to get an accurate understanding of your tax liabilities and potential rebates. They can provide tailored advice based on your complete financial picture.

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