Private Hire Insurance and Your Tax Return

Private hire insurance is an allowable expense on your tax return, but only if you claim your actual vehicle costs — and only the business share of it. If you use simplified mileage rates instead, you cannot claim insurance separately, because the mileage rate is designed to cover it.

For most private hire drivers, hire and reward insurance is one of the largest costs of the year, so the method you choose makes a real difference. This guide explains how insurance is treated, how to decide between the two methods, and the record keeping that makes your claim stand up.

Key takeaways

• Hire and reward insurance is a business vehicle cost for private hire drivers.
• You can claim it only under the actual costs method, not alongside mileage rates.
• If the car is also used personally, claim only the business percentage.
• Once you choose a method for a vehicle, you normally keep it for that vehicle.
• Fines and penalty charges are never allowable, even when working.

What hire and reward insurance is

Standard car insurance does not cover carrying paying passengers. Private hire drivers need hire and reward cover, sometimes called private hire insurance, which insures the vehicle while it is being used to carry fares. It is typically much more expensive than ordinary cover, and licensing authorities require it as a condition of working.

For tax purposes, that makes it a cost of running your business vehicle, in the same family as fuel, servicing, repairs, road tax and MOT. How you claim it depends on which method you use for vehicle costs.

The two ways to claim vehicle costs

Self-employed drivers can claim vehicle costs in one of two ways. The actual costs method adds up what you really spent on the car — insurance, fuel, repairs and so on — and claims the business share, with capital allowances for the purchase of the vehicle itself. The simplified expenses method uses flat mileage rates set by HMRC instead of any of those running costs. The rules and current mileage rates are on GOV.UK's simplified expenses for vehicles page.

Parking, tolls and congestion charges paid while working are generally claimable under either method, because they are not running costs of the car itself. Check the current rules on GOV.UK's self-employed travel expenses guidance.

Working out the business share

If the car is used only for work, the business share is 100%. Most drivers also use the car personally — the school run, the weekly shop, a weekend away. In that case, you work out business miles as a percentage of total miles for the year and claim that percentage of each vehicle cost, including insurance.

Your platform or operator records show trip miles, but they may not include the miles driven between jobs while available for work or travelling to your working area. A simple log of odometer readings at the start and end of each working shift, plus annual start and end readings, gives you a defensible figure.

Step by step: claiming insurance correctly

1. Decide which method you use for this vehicle, and record the decision.
2. Keep your insurance schedule and proof of payment for the tax year.
3. If you pay monthly, total the instalments paid within the tax year, 6 April to 5 April.
4. Keep a mileage log that separates business and personal miles.
5. Calculate your business percentage from the log.
6. Apply that percentage to insurance and every other actual vehicle cost.
7. If a rental charge includes insurance, claim the rental once and do not list the insurance again.

Worked example (illustrative example)

"Tariq", an invented illustrative example, is a self-employed private hire driver in London who owns his car. Over the tax year his mileage log shows that 80% of the miles he drove were for work and 20% were personal.

Tariq uses the actual costs method. He adds up his hire and reward insurance, fuel, servicing, repairs, road tax and MOT for the year, then claims 80% of the total, plus capital allowances on 80% of the car's cost. His parking and congestion charges while working are claimed in full on top. A speeding fine he received during the year is left out entirely.

A friend with a small hybrid and much lower insurance uses mileage rates instead, and claims no insurance at all. Both are correct: they have simply chosen different methods, and each has to stay with the method chosen for that car. Tariq and his figures are invented for illustration only.

Common mistakes

• Claiming insurance on top of mileage rates. It is double-counting, and HMRC can disallow it.
• Claiming 100% when the car is also used personally. Only the business share is allowable.
• Switching methods each year. You normally keep the method chosen for a vehicle until you stop using it.
• Using the policy start date instead of the tax year. Claim what you paid between 6 April and 5 April.
• Claiming fines. Parking fines, penalty charge notices and speeding fines are not allowable.
• Having no mileage log. Without one, your business percentage is an estimate that is hard to defend.

Getting it handled

Our private hire driver accounting starts from £249 per year and includes comparing the two methods on your real figures before you commit. App-based drivers can also see our Uber driver accounting, and our complete driver tax return guide covers the rest of the return. If your profits are growing, read when a driver should switch to a limited company.

Unsure which method suits your car? Get in touch or see our pricing.