The Pitfalls of moving away from Self Employment
Updated: Jan 28
I've seen a few posts from Black Cab Driver that have had enough and decided to hang up their keys, not to renew their licence or decide to sell their cab. I can fully appreciate that mindset as streets become more restrictive, moving around is difficult, and offices remain closed.
As a driver and an Accountant, I just need to bring your attention to a couple of pitfalls before you make the leap and move away.
Firstly, the Corona Virus support we have received this year has a couple of caveats, one of which is that you must continue to trade in 20/21 year. It is not specific to the amount of 'trade' that must be sustained. However, there must be a tax return completed which meets that criteria or it may be that you get a nasty letter requesting the money back. And worse still, you don't want to be in a position to have sent off your 20/21 return early, paid your tax on the SEISS and then receive a letter requesting payment back further down the road!
There is also a second problem to watch out for. If you own your vehicle, you will notice that it gets depreciated every year by your Accountant. Depending on how much depreciation has been used in your Accounts can have a significant effect on tax. For example, I own a TX4, which I know has been entirely written off in my accounts. If I were to sell it today for £10,000, technically it would all be profit because I have claimed the write down in prior years. At 20% tax and 9%, national insurance that's a £2,900 tax bill that will need to be paid on top of SEISS payments received and any other income. If your plan is to take early retirement and live off savings until pension kicks in, this information could make a significant difference. Usually, this wouldn't happen because of buying another vehicle. Obviously, if you do happen to be selling something for £30,000, the tax numbers become quite large!
There is also another third trap not to fall into. Someone I spoke to was wishing to sell their vehicle and work somewhere else until next year. This is all ok, but this may trigger the high tax bill outlined above, and then end up buying another vehicle next year, which doesn't help you claiming tax back that you incurred this year. In this instance, if you were to sell a written off cab in the accounts for £30,000, it would incur an £8,700 tax bill at 29%. If then a vehicle is bought for £45k next year, the £8700 would still need to be settled!
I hope this is all clear. The figures above are assuming basic rate tax, if you happen to be PAYE or receive income from elsewhere, the higher rate tax is 40% and is 2% NI, making the above example even more painful.
Good luck to those that are working today.
Have a great day!