Starting A UK Taxi Business? What Insurance Do You Need?
by Abdul Aziz Mondal Starting a Business 03 January 2023
Despite inflation rocketing over the last year, many individuals were keen to invest and start a new business. The pandemic was an extremely challenging period for UK businesses, but 2022 was far more positive.
In the first half of the year, over 400,000 new businesses were registered at Companies House, and 2023 is likely to see even more start-ups appear. Even though fuel prices have also soared to record highs, starting a taxi firm could be a potentially good idea for a new enterprise.
In 2019, the global taxi market was worth over $60 billion. By 2027, this is expected to have more than doubled. At a CAGR of 12.3%, the taxi industry could be worth nearly $121 billion in 2027.
How Easy Is It To Start A Taxi Business?
Starting a taxi business is much the same as any other start-up with some distinctions attached. You will need to do some market research, and build a business plan as you would for any new enterprise.
But, you will also need to consider aspects such as fares; how much you charge customers, and how fuel prices and insurance will affect you and your drivers.
Nonetheless, a taxi business can be started and operated by just yourself at the beginning. You will need the proper licensing and insurance to operate as a cab driver. For instance, in London, you will need a PHV, or private hire vehicle license plus the appropriate insurance to ensure you are legal.
The biggest outlay when setting up like this will be the vehicle. As you expand you will need an office to operate the taxi business which will require further capital and a business license. Understanding how to raise funds without loans will be of great benefit.
What Insurance Will You Need To Consider For Your Taxi Business?
It may seem surprising, but there are very few legally required insurance policies for businesses in the UK. If your taxi business results in you having employees then it is mandatory to have cover through employer’s liability insurance.
To be able to drive you will also have to have car insurance of the right kind. Standard vehicle insurance is not enough to drive commercially. The Department of Transport reports that England had 260,700 PHVs and licensed taxis in 2022.
These all required insurance to legally be able to operate. One expert at Zego explains that there is a difference between private hire and public hire insurance. If you intend to work as a hackney cab driver you can use public hire insurance. However, if you operate a taxi business, then your drivers will need private hire insurance.
Why Private Hire Insurance Instead Of Public Hire?
If you intend to operate a cab then you will need the correct insurance to be able to drive on the UK’s roads and to transport customers from pick-up to their destination.
The two main types of taxi insurance are private hire and public hire. The differences are quite distinctive, and the penalties for ignoring them can be very steep, as you will see further down this article.
Public Hire Insurance
This insurance is for taxi drivers who intend to pick up passengers at cab ranks, or by being hailed down. For example, hackney carriages would need public insurance. A black cab driver though, might require specialist insurance that includes public and private hire, as the latter works differently.
Private Hire Insurance
This type of taxi insurance covers drivers who only carry pre-arranged bookings. A good example of this would be Lyft or Uber. These companies only take passengers who have a pre-arranged booking. Drivers using this kind of taxi insurance cannot pick up passengers at cab ranks, or be hailed in the street.
Both types of insurance, and any hybrid combination of them, would cover fire and theft, damage in the event of an accident, and protect third-parties such as passengers. Normally, add-ons would be available for breakdown coverage, etc.
Do You Or Your Drivers Pay For Taxi Insurance?
Things are simpler when you are operating as a self-employed driver. You either take out public hire insurance and collect passengers without prior bookings. Or, you get private hire insurance, and take bookings through a cab firm.
If you are running a taxi business that uses other drivers, then you may pay insurance for them, or they may cover it themselves. For instance, if you own the cars that the drivers use then you would cover the insurance.
Many taxi firms in the UK will rent vehicles to drivers by the week or even the day. This allows drivers to work part-time. In this instance, you would be responsible for insurance.
If you use self-employed drivers that use their own vehicles then they would normally pay for insurance themselves. But, these drivers are free to work for any licensed taxi company as they choose and are not tied to your operation.
There are also complications regarding how much tax taxi drivers pay. And it would pay to get expert advice on making sure your company is compliant with all the laws regarding insurance, tax, and licenses.
Will Your Drivers Need Public Liability Insurance?
Although not a legal requirement in the UK, it is widely accepted that public liability insurance is essential for many businesses. As a taxi company operator, you should consider having this cover put in place if your insurance policies don’t already include it.
If you are leasing vehicles to contractors, or employing drivers. Ensure that your vehicle insurance includes public liability.
A self-employed taxi driver will benefit from having public liability insurance if any claims are made against them. If you decide to start your business as a solo driver before expanding later, then reading a guide to private hire insurance is essential.
Through this, you will discover that private hire taxi insurance would almost always have public liability cover included.
What Happens If Your Drivers Take Fares Off The Books?
As mentioned previously, private hire and public hire are not interchangeable, and the cover they provide is very distinct from each other. Driving can be a simple way to become self-employed in the UK, but the legalities surrounding this need to be researched and understood.
If a private hire driver decides to try and pick up passengers without a prior booking, then they can be penalized under the law. This can result in a fine, or much worse, an outright driving ban. It needs little explanation that a driving ban will result in immediate unemployment for any taxi driver.
As a business operator, you are unlikely to be liable for your driver’s actions in this regard. But, your company could make the local news if it is an employee, and you will be a driver down.
Summary
Insurance policies are there to protect the holder and any third parties who may be affected by incidents such as theft or accidents. Taxi businesses don’t legally need to hold many insurance policies, but the vehicles themselves must be covered.
Depending on how you operate your business, you may be expected to insure the cabs themselves, or your drivers may be responsible. Public liability insurance is essential in this type of business, and if you start to employ drivers you will need appropriate insurance as an employer too.
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