How to start A Taxi Service. Taxi Drivers Miss out on Capital Tax Allowances

However, operating a taxi service can be demanding in a number of ways. It can be mentally demanding, having to concentrate whilst driving for a long period of time. It can be physically demanding, with the risk of unprovoked attacks and dealing with passengers who are under the influence of alcohol. It can also be financially demanding, as often the running costs of the vehicle can be quite substantial, and in the event of a major malfunction of the car can result in the car being out of commission and therefore not providing the facility to earn money.NYC taxis struggle to make ends meet amid coronavirus scare

Consult local taxi drivers and taxi 新界的士 companies to assess the market for a taxi service in your area. Many taxi drivers get very defensive at the risk of new drivers entering the market place, however, by speaking to a good number of them, you will find some are not so threatened and will freely give information on becoming a taxi driver or starting a taxi service in your area.

The first step is to apply and to get a license to drive a taxi. You can usually start the process at your Local Department of Motor vehicles, or a visit to your local government authority website to provide you with the information where to apply for a license. Even if you intend to start a taxi service and hire other drivers, you should still apply for a taxi license in the event of ever having to deal with issues of being short staffed.

Next you will have to find out who in your area regulates taxis and who issues taxi licenses. Again, a visit to your local City Hall or a visit to your local government website should provide you with this information. In controlled markets, these licenses can some times attract a substantial fee. Usually in these cases it can be possible to rent a license from an existing license holder.

After you have acquired the necessary licenses. You will have to then estimate your start-up costs. You will have to decide, do you want to start a taxi company and have a fleet of vehicles, whereby you will require licensed drivers to drive to taxis or do you wish to drive your own taxi as a sole operator. Either way, you will have to factor in costs such as the cost of the vehicle, the cost of having meters and signage fitted, insurance costs, and also an allowance for the depreciation and the repair of the vehicle as needed. With a well researched business plan, many banks are approachable for offering finance for such a business venture.

Capital tax allowances are allowances on fixed assets a business may claim as a deduction from net profit to arrive at the net taxable profit. If a taxi driver does not claim the correct capital tax allowances in the taxi accounts that net taxable profit and the income tax and national insurance payable will be higher than it need be. Hard cash lost to the government that they are not entitled to, your cash. A fixed asset is typically a piece of kit purchased by a business that will be used by that business to generate a profit over a period of time, perhaps more than one year, as opposed to an item that is consumed within the financial year. Items in the category of fixed assets may be plant and machinery, fixtures and fittings, computers and vehicles.

For most fixed assets the capital tax allowance consists of an enhanced first year allowance in the year of purchase and writing down allowance in subsequent years. This type of tax allowance spreads the allowance of the amount spent over the life of the asset rather than that item being expensed in full in the year the purchase was made.

For small businesses the first year allowance is currently 50%, 2007-08 and in subsequent years the writing down allowance is 25% of the balance. Special rules apply to vehicles and of particular interest when preparing the accounts. These special rules certainly affect them, many of whom will find they are not eligible to claim the 50% first year allowance on their taxi.

Vehicles, including taxis are generally excluded from the 50% first year allowance and may not be claimed in the taxi driver accounts. In addition the 25% writing down allowance is restricted to a maximum of 3, 000 pounds p. a. The writing down allowance continues until the value of the vehicle is written off for tax purposes or is sold.

When a vehicle is sold if the vehicle is sold at a price below the written down value for tax purposes then an additional capital tax allowance can be claimed in the accounts. The additional tax allowance is equal to the difference between the price at which the vehicle was sold and the net written down value for tax purposes. When a vehicle is sold at a price above the net written down value for tax purposes there is a deduction in the capital allowances which is called a balancing charge and is equal to the sales value less the written down value for tax purposes.

Commercial vehicles are treated differently to cars. First year allowances can be claimed against the purchase price of vans that are deemed to be commercial vehicles. The Inland Revenue website has a list of vans it deems to be a commercial vehicle and the make and model of any van thought by the owner to be a commercial vehicle should check that vehicle against the list when claiming a first year allowance.

The writing down allowance on commercial vehicles is not restricted to 3, 000 pounds. Capital tax allowances on commercial vehicles is then the same as a typical piece of plant and machinery whereby a 50% first year allowance can be claimed in the first year with a 25% writing down allowance in subsequent years.

The capital allowances act 2001 makes a distinction between cars and qualifying hire cars. Cars are subject to the restrictions on capital tax allowances applied to vehicles while qualifying hire cars are not subject to these restrictions in a similar way to which qualifying vans, commercial vehicles are treated.

The definition of what constitutes a qualifying hire car as opposed to a car is crucial to taxi drivers when the taxi driver accounts are being prepared either by them or the taxi accountant. Simply using a car solely as a taxi is not sufficient to avoid the capital allowance restrictions. Using a vehicle which is deemed to be a qualifying hire vehicle is sufficient to allow a first year allowance and unrestricted writing down allowances to be claimed in the taxi accounts

To comply with the definition of a qualifying hire car the vehicle must be of a type that is not commonly used as a private vehicle and would also be unsuitable for use as a private vehicle. Hackney carriages, black cabs and limousines fall into the category of a qualifying hire car and taxi drivers using these types of vehicle may claim the 50% first year allowance and the 25% writing down capital allowance in subsequent years in the taxi driver accounts.

Other vehicles used as taxis would not receive the first year allowance but would be subject to writing down allowance of 25% of the original cost in the first year and a further 25% in succeeding years all subject to a maximum of 3, 000 pounds per vehicle per annum. In addition when preparing the accounts taxi drivers should note that if the taxi is also used for personal use then a further deduction in tax allowances is applicable according to the percentage that the taxi is used for personal business.

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