Choose your taxi or private hire business model

Decide what kind of business you are starting before you apply for a licence. The licences, insurance and tax duties that follow depend on:

• the type of vehicle you work in
• whether you only drive or also take bookings
• how you engage any drivers you use

The baseline is England and Wales outside London, with notes for London, Scotland and Northern Ireland. The rules behind each licence are in Taxi and private hire licences and insurance: what you need.

Taxi or private hire vehicle

A taxi (hackney carriage) can be hailed in the street, hired at a rank or booked in advance. A private hire vehicle (PHV, or minicab) must be pre-booked and cannot be hailed. The law licenses taxis and private hire vehicles separately. The choice affects your work in these ways:

• a taxi can ply for hire only in the area of the council that licensed it
• for private hire, your driver licence, vehicle licence and operator licence must come from the same council
• who sets your fares depends on the vehicle type

What you can charge

The vehicle type decides who can set your fares. This affects how you price your work.

A council can set a table of fares for taxis. A private hire vehicle has no council table of fares and needs no meter, so you agree the price with the passenger. One rule applies to a taxi journey that ends outside the council's district and had no fare agreed before the hiring. Charge no more than the meter shows. If the taxi has no meter, charge no more than the council's table of fares.

Driving only, or taking bookings

An owner-driver who takes work from a licensed operator needs a driver licence and a vehicle licence. You do not need an operator licence for that work.

If you take private hire bookings or dispatch private hire vehicles, you need an operator licence as well. Taking bookings is a separate activity from driving, with its own licence and records.

A licensed taxi can accept pre-booked fares without an operator licence. The operator licence is for private hire bookings.

Who licenses you

The body that licenses you depends on where you work:

• in England and Wales outside London, your district or unitary council
• in London, Transport for London (TfL), which licenses taxis (black cabs) and private hire vehicles, drivers and operators
• in Scotland, your local council
• in Northern Ireland, the Driver and Vehicle Agency (DVA), which licenses operators, taxis and taxi drivers separately

The England and Wales position on operator licences does not apply in Northern Ireland. There, anyone who runs a taxi service needs an operator licence, apart from a driver affiliated to a licensed operator. An independent owner-driver needs their own.

London taxis have their own regime, so check TfL before you choose a London model. Ask your council's licensing team which licences it offers before you commit to buying a vehicle.

Employed or self-employed drivers

If you run a booking business, you also decide how drivers work for you. Each driver needs their own driver licence whichever way you engage them. A licence does not tell you whether a driver is an employee, a worker or self-employed.

The label in your contract does not settle the question. Courts look at how the work operates in practice. That includes who sets the fare and how much control you have over which jobs a driver can turn down. Read the guidance below before you offer anyone a self-employed arrangement.

For the full tests, see Employment status: employee, worker, or self-employed. If you take on employees, including office or dispatch staff, you must register as an employer for PAYE and take out employers' liability insurance. You also hold passenger names, addresses and booking records, so check whether you must register with the Information Commissioner's Office.

What your choice means for insurance and tax

Every model needs the right cover for the vehicle. A taxi or private hire vehicle that carries paying passengers needs insurance for that use. This is called hire and reward cover.

An owner-driver can trade as a sole trader. A firm that will employ staff or take on drivers may prefer a limited company. Settle this before you register with HMRC, because it changes your tax, your liability and your paperwork:

• read Sole trader or limited company to compare the options
• as a sole trader, register as self-employed with HMRC
• as a company, set up a limited company

Once you are trading, check your turnover against the threshold in VAT registration. Vehicle costs usually make up much of an owner-driver's expenses, and Claim business expenses as a sole trader explains how to claim them.

Emission charges where you drive

Where you drive can change which vehicle makes sense. Clean Air Zones in some English cities charge taxis and private hire vehicles that fall short of the zone's emission standard. London has its own charging schemes, and TfL sets the vehicle rules for London licences. Check both before you buy a vehicle.

Where to go next

Once you know your model, follow the whole path in Start a taxi or private hire business. To apply, use Apply for your taxi or private hire licences. Once you carry fares, see Duties to passengers for taxi and private hire drivers.