Where we have many clients in one sector, I’ve tried to write blogs tailored to their specific situation. If you’re not a driving instructor, this may be of minimal interest to you!
Self-employment
Most driving instructors will be self-employed. I have written about self-employment in general here which I can recommend reading. This blog then picks up on specifics that driving instructors might need to know additional to that.
Turnover
A driving instructor’s primary source of income is lesson payments from their pupils. There may be a few other sources, such as payment for covering a lesson for another instructor, or payment from a pupil for a test that you have paid for on their behalf. All of these should be classed as sales.
If you don’t perform the lesson that you were paid for, such as if you refund the pupil for a lesson they didn’t have or another tutor covers the lesson for you, then these are effectively negative sales and should be placed in the same category as sales. They will reduce your total income that is declared on your tax return, and therefore reduce your tax bill.
Expenses
The rule of thumb is that everything that is fully business related can be claimed. Some costs that are partially business related and partially personal spend may be able to be claimed, although it is always best to check with an accountant if you are unsure.
One thing that can’t be claimed is food and drink. Unfortunately for driving instructors who are often out and about all day, HMRC’s viewpoint is that you need to eat and drink, and this doesn’t become a tax-deductible expense just because you are away from home. It can only be claimed if you do something substantially outside of your usual working day, such as go to a training session or a conference.
Any clothing that you buy for your lessons also can’t be claimed, for similar reasons. HMRC assume that you’re not going to turn up to work naked, and therefore your clothes don’t become a tax-deductible expense just because you are self-employed. The exception to this is if you have any items of clothing – e.g., t-shirts, baseball caps – that are branded with the naming of your driving school. These are therefore seen more as advertising and HMRC assume you will be unlikely to wear them in your day-to-day life.
The biggest expense for any driving instructor is likely to be their car costs. I will speak a bit about the purchase later, but all the costs attributable to keeping your car running such as petrol, diesel or electricity depending on the type of car you have will be claimable. If your car is only used for lessons then it will be claimable in full, if there is partial personal usage then you will need to estimate a split and these costs can be apportioned at the end of the year.
Other car running costs will be claimable such as car insurance, vehicle repairs, or car cleaning if the car has business use only.
You may be working independently, or you may be part of a franchise. If it is the latter, then these franchise fees are a deductible expense.
Any costs you pay on behalf of your pupils are claimable whether it is test fees you pay on their behalf, or materials you buy to assist their studying.
Training costs are an allowable expense. Most instructors will have a high amount of training costs initially as they gain their accreditation. After that there may be the odd training course here and there, and any conferences can also be claimed as ongoing development.
Most instructors to a little work from home each month. This will be general admin work, booking up lessons and keeping on top of their accounting. If you work more than 25 hours from home each month, which is just over an hour a day, then you can start to claim HMRC’s basic allowance for working from home. It is possible to calculate the exact costs by adding up all your bills and apportioning them, but often it leads to a very similar figure and is a lot more time consuming.
On top of the standard allowance, you can also claim a work percentage of your broadband and your mobile phone costs. This doesn’t need to be worked out scientifically but needs to be a realistic estimate of the amount of each item that you use for your business.
Finally, it is important to note that anything you pay yourself cannot be deducted before tax is calculated. Anything you take for personal usage is effectively drawings and should be classed as such.
Expenses prior to starting as a driving instructor
Any costs that you incur to get set up to be a driving instructor will be claimable in your first tax return if they would have been claimable after you began teaching. It may be that these need to be added manually to your data, so it is best to keep a list that you can provide as back up if needed.
Car Purchases
Generally, if you purchase a car as a business asset, you are only able to claim a portion of that as a tax-deductible expense. This could be 18% per year if emissions are over a certain level or 6% per year if they are under that level. Fully electric cars can be claimed in full in the year of purchase as a deductible expense.
However, for driving instructors, if a car is fitted with dual controls, then you can claim 100% of the cost in the year of purchase. There is case law stretching back nearly 60 years which allows this, making it allowable even though it is not mentioned explicitly on HMRC’s guidance on business vehicles.
If you claim 100% of the car in the year of purchase, you will need to be aware that as and when you dispose of a car, the sales price effectively becomes taxable as you can only claim a tax deduction on the actual amount you spent on the car. For example, if you buy a car for £20,000 but sell it 3 years later for £8,000 then using the car in your business has cost you £12,000. The remaining £8,000 is subject to a claw back from HMRC.
In practice, this may not affect you too much if you remain as a driving instructor. The car you sell for £8,000 may be replaced by a car that costs £25,000. What would therefore happen is you will claim a tax deduction of £25,000 but have a claw back of £8,000 meaning you can effectively only claim a deduction of £17,000 on your new vehicle.
The claw back will therefore likely only become an issue when you cease teaching.
Software
I recommend using software for almost all clients who are self-employed. For driving instructors, there are a lot of incomings and outgoings – especially with multiple receipts from students and petrol spend each month. Software allows you to easily sort this when reconciling your bank account making it a much quicker process to get your data ready for your tax return. There are other benefits of using software which I list here.
Banking
With any self-employed business it will be a good idea to get a separate bank account for your business incomings and outgoings, and then withdrawing money into another personal bank account when you want to spend it on non-business items. This allows for all your data to be much cleaner, and it will help you or your accountant identify business related transactions much more easily.
Deadlines and taxes
Your tax return will need to be completed by the 31st of January each year. Your tax bill will also be due on this date, although it is likely that you will need to make payments on account towards the following year’s bill.
Any questions about anything here, or anything that I didn’t mention, feel free to get in touch and I will endeavour to answer them.
2 Comments on “Accounting issues for driving instructors”
Hi all, I have been an ADI (Driving instructor) since June 2024, but have been a PDI (Potential driving instructor) since July 2023.
I am and have been in franchise with the AA throughout my journey thus far. I need to file for my taxes soon and was wondering if this is something that you can help with and what your charges are? Please do let me know if what/if you need any further information from me to continue.
Many thanks
Ion
Hi Ion,
Can you email me stewart @ anderson-accounts.co.uk and I will be able to give you a quote based on your situation.