How profitable is a taxi business in the UK
A taxi business’s profitability can vary widely across the UK based on several factors like location, demand, business model, and operational efficiency.
On average, taxi driving can generate between £25,000 and £52,000 in gross revenue per year. Your net profit is what’s left over once expenses and income tax have been paid.
However, there are many ins and outs to consider before a taxi company can be deemed profitable.
In this article we’ll explore the various aspects of the taxi industry, including how much money you could potentially earn, what factors affect your profitability, how to start your own taxi business, how to minimise expenses – and more!
How much money does a UK taxi driver make?
Here’s a list of 2024 UK taxi drivers’ gross salaries vs what they take home each month (excl. business expense deductions):
| Experience Level | Hourly Rate | Gross Monthly Salary | Tax | National Insurance | Take Home Pay (Monthly) |
|---|---|---|---|---|---|
| Entry Level | £13 | £2,113 | £213 | £106.50 | £1,793 |
| Average | £17.38 | £2,825 | £355.47 | £177.73 | £2,291.63 |
| High | £26.67 | £4,333 | £686 | £317.05 | £3,330.28 |
September 2024 data as per Talent.com’s website.
Now let’s move on to the factors affecting your taxi business’s profit margins.
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Get QuotesWhat factors affect profitability in a taxi business?
Many factors come into play when determining cab businesses’ profit margins, such as:
Taxi service model
Public hire
Operating as a black cab/hackney carriage driver may result in higher profits as you can collect passengers from the side of the street or taxi ranks without prior bookings. This is particularly beneficial in high-density urban areas or tourist hotspots.
However, cab drivers are limited in where they can operate and local authorities strictly regulate taxi fares.
You might be interested in: Can Taxi Drivers Work Outside Their Licensed Area In The UK?
Private hire
Taxi firms in the private hire sector also have great earning potential as they collect passengers with pre-arranged bookings and can set their own fares. Private hire work isn’t limited to taxi driving though, as these drivers can branch into:
- Corporate accounts
- Tour guides
- Airport shuttles
- Chauffeur services
- School/sport/nursing home transportation
Fleet
Owners of a fleet taxi business can earn more money as they have multiple vehicles on the road. But they bear the brunt of higher operating costs, vehicle maintenance, and insurance expenses.
Location
Urban areas: Taxi businesses in large cities like London, Manchester, and Birmingham tend to be more profitable due to higher demand. However, competition can be fierce, with many cabbies vying for the same slice of pie.
Rural areas: Demand is typically lower in out-of-town areas, but competition is often less intense. Taxi insurance costs are generally cheaper in rural areas, too.
Operating costs
Day-to-day business expenses differ between different regions in the UK which can seriously affect your profit margins:
- Fuel costs: According to the AA, London has the highest petrol prices (£1.46 p/litre) whereas Northern Ireland has the lowest (£1.39 p/litre).
- Vehicle maintenance: The average cost of vehicle maintenance in The Capital is between £150 and £500; whereas, it’s between £150 and £180 in Northern Ireland.
- Taxi insurance: Annual taxi premiums average around £1,800 and £1,500 in London and Northern Ireland respectively.
- Drivers’ wages: You can expect to pay London cabbies about £43,000 per year compared to £17,900 in Northern Ireland.
Pricing strategy
- Public hire vehicle: Fares are calculated by a taximeter and are regulated by the local authority. For example, Transport for London (TfL) regulates hackney carriage fares in London, ensuring a set amount per journey.
- Private hire vehicle: A self-employed taxi driver is free to set their own fares since they are not regulated by local authorities. This loophole could increase profits but runs the risk of being undercut by other drivers.
Competition
- Ride-hailing services: Companies like Uber or Bolt have disrupted traditional taxi market trends, increasing competition across the board. Higher competition may result in less business.
- Other taxi companies: The number of taxi businesses in a specific area can impact your pricing and demand. For instance, there might be an abundance of airport taxis between 9 and 5 but less after midnight. Successful taxi businesses often work in niche taxi markets to capitalise on demand.
Driver efficiency
An experienced taxi driver knows how to maximise fares and avoid traffic, resulting in more streamlined operations. They also have responsible driving habits, like sticking to the speed limit and bypassing bus lanes, and know how to make conversations with their passengers (to earn a good tip!)
How To Start A Taxi Business In The UK: What you need to know
Starting a taxi business is relatively straightforward compared to other business ventures, but still requires a fair bit of planning to get it off the ground.
Follow these tips to start your own private hire taxi business, whether you operate as a lone ranger or hire taxi drivers to work for you:
Create a solid taxi service business plan
- Model: Decide which cab service you want to offer (i.e. public or private hire).
- Finances: Ensure you have enough start-up capital to get your taxi business off the ground and cover ongoing costs until you generate an income. Set aside a contingency fund for unforeseen expenses and develop a pricing strategy that covers expenses and generates profits.
- Conduct market research: Assess the local market, including peak hours, high-demand areas, and potential competitors.
- Operational planning: Determine your working hours, location, niche markets, and how customers will book rides (e.g. ride-hailing apps, taxi operating centres).
- Branding: Create a memorable brand with logos and catchy slogans. Keep marketing materials consistent across vehicle signage, uniforms, and social media channels.
Meet the legal requirements
You must:
- Be able to legally live and work in the UK
- Be at least 21 years old
- Pass criminal background checks
- Pass medical assessments
- Be able to communicate in English
- Pass “The Knowledge” test – for London cabbies
Bonus reads:
Obtain the correct licensing and permits
- Have a valid EU/UK driver’s licence
- Obtain your taxi licence through your local council
- Obtain an insurance certificate from your insurer
Understand business legalities
- Register your business with the relevant authorities (e.g. sole trader, limited company)
- Open a separate business bank account
- Understand HMRC tax obligations (e.g. self-assessment tax forms, corporation tax)
- Apply for tax checks – England and Wales
- Understand various compliance regulations (e.g. Data Protection Act 2018, Safeguarding and Road Safety Act 2022)
Being your own boss, all business decisions and financial responsibilities rest on your shoulders. You could consider hiring an accountant to manage your tax obligations or an office manager for day-to-day operations.
Invest in technology
Investing in taxi apps can significantly boost your bottom line by improving efficiency, enhancing customer satisfaction, and reducing running costs.
For instance, cloud-based accounting software helps you track income and expenses, while user-friendly taxi dispatch software allows customers to book rides quickly and hassle-free.
Some of the best apps for taxi drivers include:
- Taxi Manager – accounting software to track income and expenses
- PetrolPrices – find competitive fuel prices across the UK
- AppyParking – find cheaper parking
- Flightradar24 – track real-time arrivals of flights
- UK Telematics – ideal for managing taxi fleets
- Waze – free navigational tool
- Uber – get bookings directly to your phone
Get the right insurance
All UK motorists require car insurance with at least third-party-only (TPO) cover to remain compliant.
The type of insurance taxi drivers need ultimately comes down to the type of vehicle they drive:
- Hackney carriages, like London black cabs, require public hire or black cab insurance as you collect curbside passengers or work at taxi ranks.
- Private hire vehicles, like Uber, need private hire or PCO taxi insurance as you pick up passengers who have made a prior booking.
Both taxi insurance types cover drivers in the event of an accident or if they injure a pedestrian when behind the wheel. Comprehensive plans usually include standard social, domestic and pleasure (SD&P) insurance – brilliant for taxi drivers who use their own car for hire and reward purposes.
Furthermore, you’ll need:
- Employers’ liability insurance – if you hire drivers
- Fleet insurance – if you manage a fleet of taxi vehicles
- Black box insurance – if you want lower premiums based on how you drive
Pro insight: Compare taxi insurance quotes from multiple UK insurers with SimplyQuote’s 100% free, online comparison tool to find the best deal for your business and budget.
Equipment needed
- A reliable vehicle
- Card machine (if you don’t accept cash payments)
- Mobile phone
- Satellite navigation
- Dashcam
- Taximeters – applicable to public hire work
- Office space/taxi operating centre
5 Ways to boost profitability in your taxi company
Here are five ways to decrease costs in your taxi business to boost your bottom line:
1. Upgrade your vehicle
- Opt for vehicles with better fuel economy or electric cars to lower fuel costs.
- Choose newer models known for their reliability and low maintenance.
- Consider vehicles with good resale value.
2. Make your taxi vehicle more fuel-efficient
- Check your tyre pressure regularly.
- Practise fuel-efficient driving habits (e.g. avoid harsh braking/aggressive acceleration).
- Reduce the weight of your car (e.g. opt for roof boxes over roof racks).
3. Ensure vehicles are maintained
- Service your vehicle at least once a year.
- Regularly check your battery to prevent breakdowns.
- Address minor issues to avoid costly repairs.
4. Reduce operational expenses
- Use taxi apps to find the most efficient route and minimise mileage.
- Ensure taxi licences/permits are valid to avoid fines.
- Compare taxi insurance premiums to find better deals.
- Relook at your business structure to find ways to improve efficiency.
- Stay on top of taxes to prevent late-submission penalties.
- Move your office space to your house to avoid commercial expenses (e.g. rent, upkeep).
- Don’t spend money on unnecessary items (e.g. meals on shift).
5. Be a responsible driver
Responsible driving is crucial to the success of your taxi business and ensures customer loyalty and repeat business. It also helps reduce costs by:
- Preventing accidents
- Reducing maintenance
- Improving fuel efficiency
- Lowering taxi insurance premiums
Bonus read: How To Increase Your Profit Margin In A Taxi Business
Final thoughts
As you can see, a successful taxi business can be profitable, potentially generating £50,000+ annually. Get your taxi service model, location, pricing strategy and business plan right, and you’ll have a competitive edge over the local competition.
Upgrading your vehicle, investing in technology, scrutinising your taxi insurance policy and being a responsible driver will reduce running costs and boost your bottom line, ensuring your business grows and succeeds.
Happy driving!
Frequently Asked Questions
The cost to start a taxi business varies, ranging between £7,000 and £60,000. London cab drivers generally have higher start-up costs compared to other UK regions.
Yes, having your own business in the taxi sector is worthwhile, as you set your own hours and could earn between £25,000 and £52,000 annually.
You can increase your taxi business’s bottom line in many ways, such as:
- Partnering with local businesses
- Offering off-peak discounts
- Advertising on social media
- Cutting back on unnecessary expenditures