Tax Payment Guide
Paying Tax and National Insurance contributions
As a self-employed taxi driver you pay Income Tax and National Insurance through Self Assessment. Here is how the first bill works, when payments on account kick in, and how to budget without nasty shocks.
By Paul Taylor, Registered tax professional Last updated:
Self Assessment
How tax and NIC are collected
HMRC calculate Income Tax and National Insurance together on your Self Assessment.
As a self-employed person you pay tax and various national insurance contributions (NIC) through your Self Assessment. HMRC automatically work out what is due for both tax and NIC. Any exemption from NIC, through age or levels of earnings, will show in your Self Assessment calculation.
Payments on account
How does it work?
A first-year example shows when the balancing payment and POAs fall due.
If you commence say on 1 May 2015, then your profits are worked out for 1 May 2015 to 5 April 2016 (2016 Self Assessment Year 1). Your first tax bill is payable actually not until 31 January 2017.
If your tax/NIC bill is under £1,000, that is all that is due. If it exceeds £1,000, HMRC will want a further payment on account (POA) of expected tax/NIC for the next year (2016-17 / 2017 Self Assessment Year 2).
Worked example
Self Assessment tax/NIC for 2015-16 = £1,640. You pay by 31 January 2017, but because the bill is over £1,000 HMRC request by law:
31 January 2017
- 2015-16 balance: £1,640
- 2016-17 POA 1: £820
- Total: £2,460
31 July 2017
- 2016-17 POA 2: £820
By 31 January 2018, when the next Self Assessment balance is due, £1,640 will already have been paid on account. If the 2017 return shows tax/NIC of £2,000, the balancing payment is £360 plus 2017-18 POA 1 of £1,000 (half of the previous year's liability).
This method continues while you are self-employed. After a poor year following a good year, the balancing payment may be nil or even create a tax repayment.
POAs are not optional
Once your liability is over £1,000, payments on account are required by law. Budget for January and July as well as the year-end balance.
TaxiManager
Watch your Rolling Tax figure week by week
As income and expenses change, so does the cumulative tax/NIC estimate - no year-end surprise.
Budgeting
Budgeting for tax
Tax and NIC are payable on demand - keep an eye on the running total.
This is why regular entries in TaxiManager help you watch future liabilities. You will not go far wrong if you set aside the amount that adjusts each week on the Rolling Tax screen. As your income and expenses alter your profit, the cumulative tax/NIC liability updates throughout the year.
Paying HMRC
Paying tax to HMRC
Direct Debit for expected liabilities, and other payment routes when you need them.
You can set up a Direct Debit for payments of expected tax/NIC liability (not arrears):
If you have arrears, cannot pay, or need time to pay, contact HMRC Debt Management. They will discuss options for time to pay.
Contact HMRC early
In cases such as these, TaxiManager recommends you contact HMRC straight away - waiting usually makes the position harder.
TaxiManager
How TaxiManager helps you stay ready
Rolling Tax estimates and clear records so Self Assessment is not a scramble.
TaxiManager is built for UK taxi and private hire drivers who need a live view of profit and an honest estimate of tax and NIC as the year runs. Pair that with tracking income and expenses so the January bill is expected, not a shock.
For the wider picture of what to claim and how to keep books tidy, see taxi accounting software and Uber driver tax UK.
For taxi drivers
Know what to set aside before HMRC asks for it.
Track profit week by week and use Rolling Tax so payments on account never catch you cold.
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