How to Start a Taxi Business

Those who love to drive, love meeting new people, and getting to know the unseen nooks and crannies of their hometowns and cities may find driving a taxi a rewarding and successful career. For those with an entrepreneurial itch, starting a taxi business is both aspirational and achievable. After all, people will always need safe, reliable transportation that provides the kind of door-to-door service they don’t get from trains and buses.

But in an era where the expansion of ride-sharing apps has heralded an explosion of owner-drivers, ambitious entrepreneurs have more options than ever when deciding how to start a taxi company. Aspiring taxi company owners can work independently, or recruit their own team. They can operate as self-employed sole traders or create an incorporated taxi company.

For those who love to drive and yearn to run their own business, we look at everything you need to know in order to start a taxi business.

Deciding what services to offer

Before you can start a taxi business, you’ll need to decide how you will spend your days. Taxi companies offer a range of services to different types of clients. Which you choose will impact how you run your company, the kind of fares you will typically get, and what overheads you will need to cover prior to starting your business.

Let’s take a look at the different types of taxi companies to see which one best suits you.

Owner-driver

Owner-drivers use their own vehicles to accept fares and may allow other licensed drivers to use their vehicles in return for a regular charge. If you choose this option, both you and your vehicle must be licensed. You should also consider whether your personal vehicle is appropriate for use as a taxi. Taxis typically make lots of short journeys at low speeds in built-up areas. If you own a diesel car, this is a recipe for a clogged diesel particulate filter and a potentially expensive repair.

Ever wondered why so many Uber drivers own a Toyota Prius? Hybrid and electric vehicles are often used as taxis because they are eco-friendly and cost-effective to run as taxis.

Driver-only

Driver-only taxi companies are typically self-employed sole traders who use a vehicle belonging to a company or individual to whom they pay a fee. Local taxi associations typically recruit independent drivers on a freelance basis. As your work and income will depend on these parties, it is a good idea to ascertain exactly what days and shifts will be available, and how takings and tips will be divided.

Radio circuits and apps

As well as using popular apps like Uber, Bolt and Gett, owner-drivers can find work as independent taxi drivers by joining a local radio circuit. Both options mean that you will be using another company’s branding and using their operating systems.

Specialist services

Those with prestige, luxury, or high-capacity vehicles may find regular work offering more specialist driving services. These may include:

• Chauffeur services

• Airport shuttle services

• Minibus services

Writing your business plan

In order to start a taxi business, you’ll need to develop skills beyond driving. You’ll also need to learn how to manage your time, how to budget, and how to get to know your target market. If you want to start a company that has a fleet of vehicles and a permanent base of operations, this will require substantial overheads, which inevitably means business borrowing. Lenders will want to see a detailed business plan so that they know that you will use their money responsibly and represent a safe investment.

Finding your niche and market research

You may assume that your target market consists of anyone who needs to get from Point A to Point B. However, it’s important to establish client personas to decide who best to cater to. This will determine everything from shift times when clients are travelling the most to how and where to market your business.

Common niches for taxi companies include:

• Students (late nights)

• Commuters (rush hour)

• Tourists (daytime hours for sightseeing but also nightlife)

• Business people (9am-5pm)

Once you’ve identified a niche, it’s worth carrying out some market research to ascertain what these clients value in a taxi service.

SWOT analysis

Every business needs to bring something new to the market. Something unique that only they can offer that is of value to the areas and people they want to serve. As such, many business plans include a SWOT analysis – a comprehensive breakdown of their:

• Strengths

• Weaknesses

• Opportunities

• Threats

Cash flow analysis

If you expect to borrow startup capital from a bank or business lender, your business plan should include an extensive cash flow analysis to show your predicted income and expenditure for your first year. This will show prospective lenders that you have an understanding of how to properly manage a business budget and understand the principles of business accounting.

Obtaining licences and permits

In order to start a taxi business, you’ll need to obtain certain permits for yourself, your vehicle, and any other drivers and vehicles that will be involved in your business operations.

The type of licence you require will depend on whether you will be working in London or elsewhere in the country. Keep in mind that Uber lost its licence to operate within the capital in 2019.

Taxi operator licence in London

To obtain a taxi driver’s licence in London, you’ll need a Transport for London (TfL) driver’s licence. You can only apply for this if you are over the age of 21. There are two types of licence:

• Small operator’s licence: For taxi companies with up to 2 private hire vehicles

• Standard operator’s licence: For taxi companies with unlimited vehicles

These licences last for 5 years and fees are payable depending on how many vehicles you wish to operate. You will also need to pass a knowledge test to demonstrate an understanding of how to drive around the city’s complex roadways.

Taxi operator licence outside of London

Outside of London, you will need to obtain a PHV operator licence from your local council, as well as driver and vehicle licences if you will be operating as an independent owner-driver. Your local authority can provide you with information on how to apply as well as the necessary fees.

Whether you will operate in or out of London, licensing will be subject to medical examinations and a DBS check.

Tax, insurance and equipment

It’s important to note that in order to renew a licence, taxi companies must complete a full accounting of their tax returns to HMRC, disclosing all of their income from private vehicle hire. Your tax liability will vary depending on your corporate structure. Self-employed owner-drivers will be set up as sole traders and therefore pay income tax. Limited companies, on the other hand, will pay corporation tax and will need to register for VAT if their turnover exceeds £85,000. Taxi companies will also require special insurance outside of regular car insurance. This should include a public liability insurance component.

Finally, taxi companies will require peripheral equipment outside of the vehicles themselves, including a card reader for accepting cashless payments, a roof sign, and a taxi metre which your local authority will install. A telematics system is also recommended if you will be operating a fleet of vehicles.