Tax Return FAQ for London Drivers: TfL Fees, ULEZ and Fines Answered

On a tax return, a London driver's licence fees and work-related zone charges usually reduce profit, while penalty charge notices never do. Those zone charges also sit outside HMRC's mileage rate. So you can claim the Congestion Charge on top of 55p a mile, which many drivers do not realise.

This FAQ deals only with how London-specific costs behave. Our Self Assessment guide for London drivers covers the full filing journey, and the London HMRC checklist covers registration and paperwork. We will not repeat them here. Instead, we answer the awkward questions those charges raise once your statements are on the table.

Key takeaways

• The mileage rate covers the vehicle. It does not cover Congestion Charge, tolls or parking fees on business journeys, so these are claimed separately.
• Penalty charge notices (PCNs) are not deductible under any vehicle method. TfL can also treat repeated non-payment as a licensing issue.
• If your app adds a zone surcharge to fares, that money normally counts as income. The charge you paid is then the expense.
• The 2025/26 tax return mixes old and new Congestion Charge rates, so a single annual sum is likely to be wrong.
• Driver licence fees are straightforward. The PHV vehicle licence alongside a mileage claim is a grey area worth a second opinion.

What is a tax return for a London private hire driver?

A tax return is your annual Self Assessment report to HMRC of income, allowable costs and profit. For a London private hire driver, it is the same return filed elsewhere in England, with extra costs from Transport for London (TfL) licensing and road charging.

Which London costs go where on a tax return?

London costs fall into three groups: costs of being licensed, charges for particular journeys, and punishments. The first two usually reduce profit when they are for work and you bore them. The third never does. Your mileage choice only touches costs tied to the vehicle itself, which is why this sorting comes first.

We built the table below from HMRC's manual and TfL's rules. It is our own working summary for a tax return. The grey row is flagged because HMRC's guidance does not address it directly. Everything assumes you are self-employed and paid the cost yourself.

How do TfL licence fees work on a tax return?

Your TfL driver licence fees are normally an allowable cost, because you cannot lawfully do the work without that licence. Include what you paid in the year, including assessment fees for an existing business. TfL raised several fees during 2026, so copying last cycle's figures will give you the wrong number on your return.

According to TfL's notice 05/26 on licence fees, these are the private hire fees for 2026. It describes them as the first licence fee change since 2017. The tax year is what matters on your return, so check the date you paid rather than the date your licence began.

Does a three-year licence need spreading?

TfL's taxi and PHV driver policy says driver licences are normally issued for three years. Under the cash basis, which GOV.UK calls the standard method for sole traders, the whole fee usually lands on one tax return. If you chose traditional accounting, ask whether the fee should be spread.

Why is the vehicle licence a grey area?

The driver licence is about you, so it sits comfortably outside a vehicle mileage claim. The PHV vehicle licence is different, because it attaches to the car. HMRC says the rate covers buying, running and maintaining the vehicle, but does not name this fee. Our cautious view is not to add it to your tax return on top of mileage without advice.

How does the Congestion Charge appear on a tax return?

The Congestion Charge is a journey cost, and HMRC's manual lets you deduct it separately when it is incurred solely for business. Standard private hire vehicles are not exempt, so most drivers will pay it. You claim the amount you actually paid, and you leave out any day when the trip was private.

The Mayoral decision on the Congestion Charge set out the current structure. The daily charge rose from £15 to £18 from 2 January 2026, and the pay-later rate rose from £17.50 to £21. Taxis are exempt, and TfL describes the wheelchair-accessible PHV exemption as applying on a private hire booking, so other journeys may still be charged. Check TfL's website for today's rates before you complete your tax return.

Why is the 2025/26 return harder than it looks?

The 2025/26 tax return, due by 31 January 2027, covers a year with changing rules. The daily charge changed part-way through, and the old 100% discount for electric vehicles ended on 25 December 2025. A new Auto Pay discount, 25% for electric cars, started on 2 January 2026. Add up your actual TfL statements rather than multiplying days by one figure.

What if my app adds a surcharge for the zone?

This is the gap in most guidance we read. The Mayoral decision notes that the largest operators apply a surcharge for trips in the zone. If that money reaches you as earnings, include it in turnover on your tax return and claim the charge you paid as the expense. Do not net the two off in your head.

Netting off can make your turnover look lower than it is. That matters beyond profit, because turnover feeds into Making Tax Digital qualifying income and the £90,000 VAT registration threshold. If the operator pays the charge directly and never bills you, you have no expense to claim. Statements vary, so read yours line by line.

What about a day that mixed work and private trips?

HMRC's wording is "solely for business purposes", and a daily charge does not split neatly. Where a work shift triggered the charge and you also made a personal stop, we would normally treat it as business. A day genuinely driven by a private trip is different. Note your reasoning at the time, because memory fades by January.

How does ULEZ affect a tax return?

If your vehicle fails the Ultra Low Emission Zone (ULEZ) standard and you pay the daily charge for work, it is normally an allowable cost. HMRC's public statement allowed low emission zone charges incurred wholly and exclusively for the trade. Compliant cars never pay it, so many London drivers have nothing to enter on their tax return here.

HMRC's position was reported in 2023, and the Low Incomes Tax Reform Group's ULEZ note records it, adding that no relief is due on penalties. HMRC's mileage manual names tolls, congestion charges and parking but not ULEZ. Claiming ULEZ on top of the mileage rate is therefore our reading, since it works the same way as those named journey costs.

The most recent TfL material we saw gave a daily charge of £12.50 and said London-licensed taxis are exempt. It also showed designated wheelchair-accessible PHVs with a grace period to 24 October 2027, only while carrying out a booking. Confirm all of this on TfL's website, and use its vehicle checker for your own registration.

Are penalty charge notices deductible on a tax return?

No. A penalty charge notice (PCN) cannot reduce your taxable profit, whether it comes from a missed Congestion Charge, ULEZ, a bus lane or parking. GOV.UK says fines and penalty charges are not allowable, and HMRC's manual treats a trader's fine as outside the trade. Being on a paid job at the time does not change your tax return.

GOV.UK's travel expenses page for the self-employed lists "fines or penalty charges" among costs you cannot claim. HMRC's manual page on fines explains the reason: the purpose of a fine is to punish, and relief would shift that burden to other taxpayers. The manual's special parking rules concern employers and employees, so they do not help a sole trader.

We also do not suggest adding back the daily charge you missed when a PCN replaced it. You did not pay that charge, so there is nothing to put on your tax return. PCN amounts vary by scheme and can change, so take the figure from your notice rather than from a forum.

Why do unpaid notices matter beyond tax?

TfL's driver policy, dated 1 September 2026, asks new and renewal applicants to declare that they owe TfL no money, including charges and fines. TfL says a single unpaid notice may not stop a licence. Repeated non-payment or an ignored court order can raise fit and proper questions. So pay or appeal promptly, even though nothing follows on your tax return.

Does the mileage rate already cover London charges?

No. HMRC says the mileage rate does not include incidental costs of a particular journey, so tolls, congestion charges and parking fees can be deducted separately when solely for business. The rate covers buying, running and maintaining the vehicle. A driver who leaves zone charges off a mileage-based tax return is simply overpaying.

According to HMRC's Business Income Manual on the mileage rate, the rate for cars in 2026/27 is 55p per mile for the first 10,000 business miles, then 25p. For 2025/26 and earlier years, the first band was 45p. So your 2025/26 tax return uses 45p and your 2026/27 tax return uses 55p, and each needs its own calculation.

The same page contains two limits worth knowing before you choose. You can only change to or from actual costs when the vehicle is replaced. And if capital allowances have ever been claimed on a vehicle, you cannot use the mileage rate for it. Black cab owners should take advice on method, as licensed taxis follow different rules on many London charges.

London traffic affects this choice in a way general guides miss. Slow central driving can raise fuel use per mile, which may favour actual costs. Zone charges do not tip the balance, because they are claimed either way. Test both methods with the mileage calculator and a clean mileage log before you commit a new car.

Illustrative example: one London driver's charges in 2026/27

This illustrative example uses an invented driver and our own round figures. Tomasz is a sole trader in London using the mileage rate on a petrol PHV that meets ULEZ standards. His commission, surcharge and penalty figures are made up to show the mechanics. They are not typical earnings or TfL's penalty tariff.

Those two errors understate profit by £2,220 on this tax return. Tomasz leaves his £140 PHV vehicle licence out of the correct column, which is the cautious position described above. At £41,000 of gross income, he also needs to watch the Making Tax Digital for Income Tax threshold, which falls from £50,000 to £30,000 from April 2027.

How do I prepare London charges for a tax return?

Download your TfL statements for the exact tax year, then match each charge against your driving days. Separate work days from private days, enter what you actually paid, and keep penalties in their own file. Doing this once a quarter takes minutes. Rebuilding twelve months of charges in January usually takes far longer.

1. Download TfL payment histories covering 6 April to 5 April, for each vehicle you used.
2. Mark every charge as work, private or mixed, using your driver app's trip history as your guide.
3. Find any zone surcharge lines on your operator statements and confirm they are inside your gross income figure.
4. Move all PCNs into a separate folder, and note whether each is paid, appealed or cancelled.
5. List licence and assessment fees by payment date, so each one lands in the correct tax year.
6. Calculate your vehicle claim on the method already fixed for that car, and do not change it because of the charges.
7. Enter the totals on your tax return, and keep the evidence with your records. Our key tax dates guide shows when each step falls due.

Common mistakes and the penalty each can trigger

Most errors on a London tax return come from honest confusion rather than anything deliberate. HMRC can still charge a penalty for a careless inaccuracy, on top of the tax and interest due. The size depends on the behaviour and how you disclose it, so check GOV.UK for the current rules on your situation.

• Claiming PCNs as motoring costs. The deduction will be disallowed if checked, with extra tax, interest and a possible inaccuracy penalty.
• Leaving app surcharges out of turnover. This understates income, and may also hide a Making Tax Digital or VAT threshold crossing, which carries its own penalties.
• Claiming a charge the operator covered. That is a claim for money you never bore, which HMRC can disallow and may treat as careless.
• Claiming fuel and insurance on top of the mileage rate. This double counts vehicle costs and can lead to an amended tax return plus penalties.
• Using one Congestion Charge figure for all of 2025/26. The total is likely to be wrong, and you may not hold evidence to support it.
• Ignoring PCNs because they are not deductible. There is no tax penalty for this, but TfL can consider repeated non-payment when assessing your licence.

Key terms

• Actual costs: claiming the business share of real running costs, plus capital allowances where due, instead of a mileage rate.
• Cash basis: recording income and expenses when money moves, rather than when they are earned or billed.
• PCN: penalty charge notice, a penalty issued for a contravention such as not paying a road charge.
• PHV: private hire vehicle, licensed in London by TfL.
• Qualifying income: your gross self-employment and property income, used for the Making Tax Digital thresholds.
• WAV: wheelchair-accessible vehicle, which has its own exemption rules on TfL schemes.

How UK Driver Accountants helps

UK Driver Accountants works with drivers only, on fixed fees from £20 a month, and we are independent of any ride-hailing app. Our personal tax service for drivers prepares and files your tax return, including the statement reconciliation described above. See how we support drivers on our London page. If HMRC has already opened a query, HMRC support is there too.

Getting your London tax return right

Sort your costs into three groups, claim journey charges on top of your vehicle method, keep penalties out, and treat surcharges as income. That covers most of what makes a London tax return different. The online deadline is 31 January, and new filers must register by 5 October. If your statements do not add up, send us your figures and we will take a look.

Last reviewed 1 November 2026 by the UK Driver Accountants tax team

This article is general information and not personal tax advice. Your own position depends on your circumstances, so speak to a qualified accountant before acting on it. If HMRC is disputing your return or has charged a penalty, we recommend professional representation.