How to start a taxi business or a private hire firm [Full guide]
Tips / 22.03.2022
Perhaps working a nine-to-five job isn’t your calling and that’s perfectly okay. You may enjoy driving your car and you may have the call to be a taxi driver. This job can be rewarding on so many levels. You can work for yourself, work with a team and there are different ways in which the taxi business is structured so that you can choose the best option for yourself when you get started.
If this sounds like you and you’d like to get into the £9 billion per year taxi industry in the UK, you may have a lot of questions. Some of these may include how to start a taxi business or how to start a private hire business?
In this full guide, you’ll go through pretty much everything you need to know to get started.
Table of Contents
Taxi (hackney carriage) vs private hire (minicabs) – what’s the difference?
As mentioned above, there are different business structures when it comes to the taxi industry that you need to be aware of. One of the fundamental questions you may have if you’re just starting out is what is the difference between a hackney carriage and private hire?
A quick distinction here will put your mind at rest.
Hackney carriages are taxi drivers that drive cabs that pick people up off the street. And if you’re wondering why it is called a hackney carriage, well, the answer will depend on where you look. But mainly, it comes from a historic time when horses that drew carts for hire were called hackneys, named after the place they were from.
Now we get to the private hire taxis. These are taxis that are, by law, not permitted to pick up passengers off the street at all. Instead, they operate with a prior reservation and pick up passengers from one location and deliver them to their destination.
There were around 251,100 licensed taxis and private hire vehicles (PHVs) in the UK in 2021, and even though the Covid-19 pandemic brought a decline to the industry, it will always be required as a service to millions of people around the UK every day.
How to start a taxi business or a private hire firm
Starting a taxi business – whether you’re an owner-driver or a private hire firm – will require some prior preparation, as with any business venture.
Some of the most important steps you’ll need to take at the beginning of the process include:
Why is market research important? Because it helps you identify niches within which you can operate and customers that you can serve. Think about this, for example: who is your target market?
If your answer is “everyone” you’re basically going to cater to no one. Therefore, you need to identify a specific and ideal passenger avatar to cater to them more effectively. There are so many niches you can serve in the taxi industry.
For instance, there are the late Friday and Saturday night clubs and restaurant-goers. There are school children which you can transport to and from school every day. There are clubs and societies which require transportation from place to place.
If you think about it this way and take your location into account, you’re bound to have more success. And why is location so important? Because you can make much better earnings in underserved areas as opposed to over-saturated ones where the competition is high.
A business plan is an essential document that you’ll need to compile and prepare when you’re looking for financing for your taxi business. It starts out with an executive summary and then it contains all the relevant information about your business.
From marketing and advertising strategies to the staff you plan on hiring and their expertise, and even your financial projections and growth strategies over the medium to long-term time frame. A business plan is something that is prepared to help you get financing.
Whether you approach a bank or a financial institution, an investor or someone else, they’ll all be looking at whether your business can indeed be a viable one and they’ll be looking out for indications that you know your industry well and that you’re very well prepared to take the plunge and that their funds will not be wasted but rather, can be repaid back in a reasonable amount of time while you show the capacity to do so.
Set-up, legalities, and structure
You’ll also need to set up the legalities and business structure of your business. For this part of the exercise, you need to think about whether you’ll be going solo or whether you’ll be hiring others to work for you.
Each different case opens up a different scenario, and therefore, talking to a legal advisor is best as they’ll be able to give you more information on your legal duties and responsibilities with each type of venture you may wish to proceed with and also how this will relate to your tax obligations and personal liability for any debts incurred by your business.
If you’re going to be a solo operator or an owner-driver, your branding may not be that important to you as you’ll essentially be a one-man show who scouts the streets for the next passenger or waits in convoys at taxi ranks to get in line and be the next to pick up the next customer.
However, if you’re planning to expand with a fleet of vehicles, branding will be crucial for you. Branding is essentially your business image and reputation and it takes a while to build up.
So, you need to be patient and continue to build up a good name. Some factors to take into account when focusing on your brand include aspects such as having a website, doing search engine optimisation for your business so that you’re found by the right locals.
Also, ensuring a broad social media presence, being easily reachable, responding to customer reviews quickly and handling negative reviews or complaints fast before they spread like wildfire on the Internet and you’ve got reputation damage to repair.
External financing is going to be crucial for your taxi business unless you’ve got a tidy sum saved up for yourself. In most cases, many operators will rely on external financing, and this is going to require a deep commitment to ensure that you’re able to pay it back.
As mentioned above in the section regarding the business plan, your lender, whoever you end up choosing, will seek projections and forecasts of expected income over a certain period of time to ensure that you’re not only able to break even but that you turn a profit as well.
However, financing needs to take other aspects into account as well. From more long-term payments to more short-term commitments. For example, you will need to factor in the following aspects:
- Business formation fees
- Software expenses – apps, call centre, software, and other such investments to ensure your business operates smoothly
- Marketing – web development, SEO, paid advertising, a social media presence, taxi wrapping, branding, and more.
- Office space expenses – sometimes, when you operate a taxi fleet, you’ll be able to manage your business from home, but you should ensure you get permission from your local authority to do so. If you’re renting, you’ll need permission from your landlord. And if you’re renting office premises in a busy area where customers can walk in and make an appointment for a trip, you also need to consider utility costs, internet service fees, telephone costs, staffing costs, furniture, and office equipment expenses, and more.
- Peripheral equipment – this can include a taxi card reader to ensure your customers can pay you by card as this is a rising trend these days. You’ll also need a taxi metre to show the taxi fare that has been rung up. Amongst other things, you’ll need satellite navigation and possibly a dashcam for insurance purposes. Besides all this, the “Taxi” sign on top of your vehicle will show that you’re open for business.
- Last, but not least, is your vehicle – this is the crux of your business and it needs to be in good shape. You can purchase the iconic London black cabs but be sure it’s less than 15 years old. Avoid using cars that run on diesel because there’s a government policy of eliminating these vehicles from the roads by a certain time frame. You’ll also need vehicle insurance.
And of course, you need to think about staffing. Staffing includes not only the other drivers who you might employ and all the associated and necessary checks you’ll need to do, such as licences, DBS checks, medical checks, and others, but also staff at your call centre to take calls and book your services.
This is especially the case for those operating a private hire firm where calls are the bread and butter of the business.
Becoming a taxi driver and how to get a taxi licence
Whether you’re wondering how to become a taxi driver or how to become a black cab driver, probably the first step you need to do is get the licensing right.
In order to become a taxi (black cab) driver, you need to be over 21 years old and have a “Transport for London” (TfL) driver’s licence.
Meanwhile, to become a private hire driver, you will need one of two driver’s licences, which are:
- a small operator’s licence – up to two vehicles for private hire bookings
- a standard operator’s licence – as many vehicles as you like
Each licence has a fee and is valid for five years.
If you’re in another location outside of London, you will need to check the licensing requirements with your local authority. In general, the licensing process involves a series of other documents that need to be submitted as well.
- Medical tests to prove you’re physically capable of driving. The costs here can vary depending on your medical provider.
- You also need to prove that you can communicate in English, at least to a minimum level. Again, if you’re opting to take the IELTS, costs for this can vary.
- Furthermore, you’ll need a Disclosure and Barring Service (DBS) check, which is a type of security check to see if you have previous convictions or other “cautions that would prevent you from working with the public.”
- Pass the Knowledge test, if you’re going to be operating within London. Since this is a bit more detailed, let’s go into more depth regarding this below.
How to pass the taxi Knowledge test
If you’re adamant that you want to be a taxi driver and you’d like to operate within London, you will need to take The Knowledge – which is a test that involves memorising the quickest routes within a six-mile radius of Charing Cross. This normally takes three to four years to learn.
You can opt for the green badge and operate as an All London taxi driver, which gives you access across the Greater London Authority area, or you can go for the yellow badge or a Suburban licence, which means you can operate in one of nine suburban sectors.
Passing The Knowledge is a big deal, and it involves separate steps. These include doing an optional self-assessment test to monitor your knowledge of the first 80 routes out of the total 320.
Then there’s a written exam with a multiple-choice test and the passing mark is 60%. Next up, you will need to be prepared for in-person one-on-one appearances, which entail oral exams on the various routes.
You’ll also need to undertake a suburban exam that tests your knowledge of 25 additional routes. It’s an intense procedure that culminates in a licence application and pre-licencing talk at which you receive your licence and badge.
Overall, if you’re planning on working in London and you’re wondering how long does it takes to get a private hire licence, you should be prepared for the long haul.
But it’s not only the licensing of the driver that’s crucial, your vehicle also needs to be correctly licensed and fulfill the required criteria. What are these?
For starters, your vehicle will need to meet the Euros 6 standards of zero-emissions capable; meet the design standards as per the TfL’s fitness document; feature a metre according to the TfL’s specifications; and be able to accept contactless and taxi card payments plus print a receipt.
How much does a taxi or private hire licence cost?
Now that we’ve gotten the licensing out of the way, it’s time to consider the costs. Yes, there are certain costs involved in the licensing process and you may be curious about how much is a taxi licence?
These fees may include the following, although they are just approximated and can be higher or lower, depending on your region of choice:
- Licence application: £250
- Skills assessment: £40
- ‘Knowledge’ or ‘Cabology’ test: £75
- Enhanced DBS certificate: £66
- Medical examination certificate: £100
In total, you’re looking at paying nearly £531 just for your licensing. This excludes the costs of your vehicle(s), equipment, and insurance.
What equipment do I need to start a taxi business?
As mentioned above, apart from the licensing fees, you’ll also need funds to pay for peripheral equipment and the vehicle(s) itself. Peripheral equipment can include a card machine, a taxi metre, satellite navigation, and a dashcam for insurance purposes.
As for your vehicle, you’ll need to make sure that it’s in good working condition and falls in line with your local council’s requirements, as well as take care of all its maintenance and insurance costs.
How much does it cost to become a taxi driver?
Becoming a taxi driver requires an upfront investment of certain fees and equipment, the largest of which will be your vehicle. However, there are other associated costs that come with the vehicle, besides the licensing, registrations, and tax return submissions that a taxi driver needs to submit to the HMRC annually.
Here’s a breakdown of some things that will require an upfront and ongoing cash commitment:
- Business registration fees and associated legal fees
- Licensing – including the driver’s license, DBS check, medical checks, etc.
- Vehicle maintenance costs and continued and ongoing petrol expenses
- Costs of satellite navigation systems, dash cam, taxi sign on top of the car
- Transaction fees incurred from using the card reader and the cost of the machine itself
- Vehicle branding
- Marketing costs – website, branding, business cards, etc.
- Staffing costs – this is if you’re operating a control centre/call centre and associated apps and software
- Premises – to house call centre staff, computer equipment, telephone and radio equipment, etc.
- Bookkeeping and accounting services to stay on top of taxes and legal requirements
Payments and profitability
Wondering if a taxi business is profitable? What about how much do taxi drivers make?
A short answer to this question is that it depends. It will depend on the number of passengers a driver picks up during the day, the distance travelled, whether they were stuck in traffic, whether the area is congested or in a quiet part of town, and more.
However, some studies show that, on average, taxi drivers make in the region of just over 540 GBP per week. Guided by this figure, you should be able to make estimates about what your potential future earnings could be.
Do taxi drivers have a minimum wage?
Most taxi drivers can be considered self-employed with no minimum wage being applied to them, but there are some who are entitled to the National Minimum Wage “if they are workers (NMWM05020) and are not genuinely self-employed running a business of their own (NMWM05060).”
Meanwhile, there are some taxi drivers who can be “self-employed for tax and National Insurance purposes but still be a worker for National Minimum Wage purposes (NMWM04020).”
To get a more definitive answer for your specific case, it’s best to speak to a professional about this.
How are taxi fares calculated?
The taxi fare calculation depends on several factors such as the initial fee for picking up the passenger, the total distance travelled, and the approximate journey time. Also, the specific time of day that the service is being delivered on, whether the service takes place on a bank holiday or a Saturday and Sunday, etc.
Overall, however, the TfL for London provides the following guidelines for calculating expected fares:
|Distance||Approx journey time||Monday to Friday|
05:00 – 20:00
|Monday to Friday |
20:00 – 22:00
Saturday and Sunday
05:00 – 22:00
22:00 – 05:00
|1 mile||6 – 13 mins||£6.20 – £9.60||£6.20 – £9.60||£7 – £9.60|
|2 miles||10 – 20 mins||£9.40 – £15||£9.80 – £15||£10.60 – £15|
|4 miles||16 – 30 mins||£16 – £24||£18 – £24||£18 – £28|
|6 miles||28 – 40 mins||£25 – £31||£31 – £34||£31 – £34|
|Between Heathrow and Central London||30 – 60 mins||£49 – £92||£49 – £92||£49 – £92|
There is a minimum fare of £3.20 at all times.
How much is private hire or taxi insurance?
This is an important question you need to figure out. Unfortunately, there’s no quick answer because it will depend on the age of your vehicle, its make, and model, your routes, the number of passengers you pick up, the value of the equipment in your car, how often you take it for maintenance, etc.
Besides, each insurance company has different policies and you may look at insurance for public liability, accident cover, theft, and other types of insurance. Ultimately, the cost of your insurance will depend on your vehicle and the policy you end up going for.
However, to save on costs and to maximise your policy, always ask the right questions, including how much cover do you get, what is that cover for, what is the cost of excess payments, and anything else you think is important to know.
How to get paid as a taxi driver?
Getting paid as a taxi driver in the past used to be through cash only. However, these days, card machines are making their way into taxi cabs, offering extra levels of convenience for the passengers.
Whereas before, passengers would ask a driver to stop at a nearby ATM to withdraw cash, they now have the added convenience of paying with a card without stepping out of the taxi. All this is because of the convenience that card machines are offering taxi merchants and their passengers.
As for TfL, mentioned above, it now requires all taxis to have a card reader installed in the passenger compartment, capable of issuing a receipt if the passenger requests one. Therefore, taxi drivers need to be aware of this requirement, particularly those operating in London, in order to comply with the law.
Are taxi drivers self-employed?
Wondering if minicab (private hire) drivers and hackney drivers are self-employed?
In short, a taxi driver is considered self-employed, or freelancers, if they set their own hours and no one supervises how they do their job. This is the case even if they rent their cab from a fleet and use a dispatcher, as in such a case, the taxi driver will be considered an independent contractor.
How to attract more customers and get more taxi work
In order to get more taxi work, invest in some marketing efforts such as branding your vehicle, leaving your business cards at clubs, restaurants, and other facilities that require their clients to take a cab.
You may wish to also invest in building a website for your taxi business and leave flyers at locations where there’s high foot traffic and demand for taxi services.
Remember that you don’t need to be in the busiest parts of town. As mentioned above, you may want to niche down and serve under-served areas to help you gain a steady income of clients. Besides, there will be less competition with other taxi drivers who work in the same area and this may mean more income for you.
As you embark on your journey of becoming a taxi driver, whether it’s a hackney carriage or a private hire taxi business, you need to be aware of some technicalities involved.
You will need to be at least 21 years old with the right licenses and the appropriate vehicle (non-diesel), or purchase the iconic black cabs that London is known for. Whether you opt for running a fleet with a set of drivers working for you or you plan on going on this journey solo, you will also need to think about how to start your business with an effective business plan that takes into consideration the niche you’ll be serving, the marketing efforts you’ll be implementing to get your brand visible, as well as projected turnover and profits so that you can present a solid argument to potential lenders.
The path towards the success of your taxi company may seem quite hefty, but with continued effort and hours put in, you’ll be able to make up for it and add more for profits for you to do as you see fit. However, remember that being a self-employed taxi driver also comes with some tax-related regulations and as of 4 April this year, you’ll be required to submit tax returns that show where your sources of income come from, what expenses you’ve made, such as petrol, insurance, vehicle maintenance, and more, and what tax deductibles you may be entitled to. The HMRC will require this information to help you ensure you stay on the right side of the law.
Disclaimer: Please be aware that the contents of this article and the myPOS Blog, in general, should not be interpreted as legal, monetary, tax, or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.
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