I've seen a few posts from Black Cab Drivers who have had enough and decided to hang up their keys, not renew their licence, or sell their cab. I can fully appreciate that mindset as streets become more restrictive, moving around is difficult, and offices remain closed.
As an ex-driver and an Accountant, I just need to bring your attention to a couple of pitfalls before you make the leap and move away.
When moving away from self-employment, the common thing to do for many individuals is to sell their capital assets. A capital asset is a valuable long-term asset to the business that your accountant will likely depreciate yearly. An example would be a taxi for a taxi driver or a van for a construction worker. Depending on how much depreciation has been used in your accounts, it can significantly affect tax. For example, I owned a TX4, which I knew had been entirely written off in my accounts. If I were to sell it for £10,000, technically it would all be profit because I 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. 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/asset. Obviously, if you do happen to be selling something for £30,000, the tax numbers become quite large!
There is also another 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!
Also, changes to tax rates are coming for both employees and the self-employed. If you are planning on moving away from self-employment, it is important to know what you could be missing out on in the near future. Read our "Pay Less Tax in 2024" article to find out more.
I hope this is all clear. If you are comfortable losing the control and flexibility of being self-employed and understand how the move will affect you financially, then we wish you luck in your new endeavour. 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.
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Have a great day!