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Author:	JD [ Sun Jan 29, 2006 6:25 pm ]
Post subject:	HM Revenue & Customs. Taxis and Private Hire Vehicles
I don't know if anyone will find this useful or not? HM Revenue & Customs. businesses & corporations employers individuals & employees Business Economic Notes 25 Taxis and Private Hire Vehicles. Part 1 1. Introduction 1.1 Working definition. 2. General Organisation of the Trade 2.1 Drivers. 2.1.1 Driver Status. 2.2 Proprietors 2.3 Operators 2.3.1 Radio Circuits 2.3.2 Operator Terminology. 2.4 Others 3. Legislation and Regional Variations in Methods of Operation. 3.1 General Taxis Outside London, England and Wales 3.2 General Private Hire Vehicles Outside London, England and Wales. 3.3 Statutory definitions as applicable to Scotland 3.4 Statutory definitions as applicable to Northern Ireland 4. Organisation, Type and Pattern of Work 5. Examining Accounts. 5.1 The Business Economics Model 6. Factors Affecting Trade 6.1 Fuel Consumption 6.2 Annual Mileage. 6.2.1 Business Economics Based on Annual Mileage. 6.2.2 Engaged Mileage 6.2.3 Effects of Tourism. 6.3 Length of Trip 6.3.1 Taximeters and Milometers 6.4 Tips and Extras 6.4.1 Tips 6.4.2 Extras 6.5 Rural and semi-rural operations. 7. Airports, and Stations 7.1 Airports 7.2 Railway Stations 8. Inter-District Cross Border Issues 9. Acknowledgements and Sources. Appendix 1 Appendix 2 1. Introduction These notes are intended to provide a broad picture of the Taxi and Private Hire Vehicle trade in the UK. Tax Inspectors will encounter a variety of different types of operations and working methods within the wider parameters of these trade sectors, methods of operation vary from region to region. This document can therefore only hope to provide a flavour of what is likely to be encountered when enquiries into this sector are undertaken. In view of the particular circumstances which affect the ‘black cab’ trade in London, Part I of the note excludes, on the whole, references to London which in turn is covered in Part II. 1.1 Working definition. What is the distinction between the Taxi and Private Hire trades? It has become increasingly more difficult to define the difference between the two sectors as modes of operation often appear the same. In particular, an increasing number of Taxis undertake both pre-booking and contract hirings as well as immediate hirings. Likewise, PHV's, although they must be booked in advance, are often booked just prior to their hire. In its simplest terms the distinction is as follows:- * TAXIS - ply for hire from taxi ranks and can be hired from the street, * PHV'S - must be pre-booked either by telephone or by calling at the appropriate operator office. The words ‘taxi’, ‘cab’ and ‘for hire’ are usually prohibited from use in connection with private hire vehicles. Recent years have witnessed an increase in the use of other types of vehicles such as PCV’s (Passenger Carrying Vehicles) and Taxi Buses. The National Private Hire Association (NPHA) The National Private Hire Association (NPHA) has provided the following overview which gives an idea of the diversity of the trade and briefly touches on legislative differences which operate throughout the country. We will deal with these in greater detail later in the note. NPHA: " Taxis are the only vehicles which may ply for hire or stand at ranks, and can be hired or flagged down in the street. There are 61 areas of the country in which mandatory black cab orders apply, and in these areas the public can easily and visually appreciate the difference between the two trades. However, outside those 61 areas a multiplicity of different types of vehicles may be used, including black cabs, which can be confusing. The position is made more difficult in rural areas where not all taxis have a taxi sign on the roof; not all taxis are required to have meters; and indeed, in some areas there are no taxis at all, only private hire vehicles. There are some local authorities who do set taxi tariffs and others who don’t. To confuse matters even more, there are several areas in the country - Brighton, Reading, Leicester, Trafford, Manchester, Bristol, Sunderland, Newcastle - upon - Tyne amongst others, where private hire vehicles have signs on their roofs. In those areas many vehicles also have meters, and it is true to say that in a lot of these areas, even the public is confused as to which category a vehicle may fall. There is evidence to support the fact that even London ‘minicabs’ are now sporting meters. The term ‘minicab’ is strictly a London term. Outside the major conurbation’s, organised taxi services - i.e. those having a base of operations and radio control - may be ‘mixed fleet’. That mixed fleet may include not only private hire and taxis, but as an increasing phenomenon, PCV vehicles as well. The day of the solely independent trader (traditional taxi) is fast disappearing. In London you will find companies with 2,500 vehicles; in addition Birmingham, Manchester, and Glasgow all have radio controlled taxi fleets, fully computerised operations, and in fact the shift is towards organised business rather than the sole trader. Within this context, however, the vast majority of vehicles are indeed owner driven." 2.General Organisation of the Trade In order that the organisation within the trade can be examined, we will look at it in terms of the following four categories: * Drivers * Proprietors * Operators * Others These categories are attached to ‘functionality’ and should provide a simple basis on which to examine the trade. 2.1 Drivers. What is a driver? Under the Local Government (Miscellaneous Provisions)Act 1976, ""driver’s licence" means, in relation to the driver of a hackney carriage, a licence under section 46 of the Town Police Clauses Act 1847, and in relation to the driver of a private hire vehicle, a licence under section 51 of the Local Government (Miscellaneous Provisions)Act 1976" The driver can have a licence or licences to cover all or any of the main categories of vehicles described in section 80. It is not uncommon for councils to issue dual hackney carriage and private hire licences, and if a company runs PCV vehicles, a driver working solely on this type of vehicle would not require a private hire or hackney carriage licence. To confuse matters further, if the vehicle is PCV licensed and has less than eight seats, the driver would not require a PCV licence. A driver is literally anyone who sits behind the wheel of a car for hire and reward, and may include:- * Non-vehicle owners who may drive private hire, hackney carriage or PCV vehicles, * The Owner Driver who owns a vehicle and operates independently, 'Sub-contractors', * 'Part-time workers', * ‘Trackers' this is a generic term used commonly outside London and has the same meaning as ‘journeymen’ or indeed ‘nightmen’ or ‘daymen’. * 'Journeymen' (see London note). 2.1.1 Driver Status. For tax purposes it is often necessary to decide whether a driver is an employee or self-employed. Local tax offices have a nominated Inspector to deal with enquiries relating to status. Due regard will be given to the relevant facts pertaining to each individual situation. Employment status is covered in the Schedule E instructions which are available for public inspection. 2.2 Proprietors The definition of proprietor under the Local Government (Miscellaneous Provisions) Act 1976 is:- ""proprietor" includes a part proprietor and in relation to a vehicle which is the subject of a hiring agreement or hire purchase agreement, means the person in possession of the vehicle under that agreement." On the face of it, this simply means the owner of the vehicle, who may or may not drive the vehicle him or herself, and may indeed have a number of vehicles which he/she employs or subcontracts to drivers for a fee. Some proprietors own large numbers of vehicles, the drivers of which may work for or obtain work from a number of operators. It is not unknown for these proprietors to only declare a percentage of the actual numbers that they own, claiming that all their vehicles operate from one base; whereas in actual fact they may have vehicles operating from bases as far as 40, 50 or more miles away. There is, however, a sub-category to be taken into account, and that is the company who purchases vehicles on behalf of the driver, and who by way of weekly "hire purchase" sells the vehicle to the driver as he/she works. Therefore, on examining such a company’s books a distinction would have to be drawn between income solely derived from work received, and income derived from the "hire sale" of a vehicle. Proprietors are a very important section of the trade, containing as it does the category owner/drivers which is certainly the largest group in the trade. Proprietors may be individuals or businesses, which may or may not require operator’s licences, depending on whether they are in a part of the country that requires such licences, or whether they do not themselves actually take bookings for journeys. 2.3 Operators This in effect is the business section, which in this country can cover anything from sole proprietor (not being just a driver or proprietor) up to the largest firm in the country, which runs 2,500 vehicles. Not all legislation, where it exists, requires operator’s licences. Outside London only private hire vehicles are subject to operator licensing and only where Part 2 of the Local Government (Miscellaneous Provisions) Act 1976 has been adopted, there is no power for local authorities to license taxi operators. However (see below) following the case of R-v-Franklyn and Carter some Licensing Authorities require that a Private Hire Operator’s Licence be held, thus bringing taxi firms into the scope of operator licensing requirements. Section 55 of the Local Government (Miscellaneous Provisions) Act 1976 says:- "Subject to the provisions of this Part of this Act, a District council shall, on receipt of an application from any person for the grant to that person of a licence to operate private hire vehicles, grant to that person an operator’s licence: Provided that a District Council shall not grant a licence unless they are satisfied that the applicant is a fit and proper person to hold an operator’s licence." According to the NPHA, there are currently no local authorities which make enquiries as to an operator’s financial standing or ability to run a business. Under the powers granted to local authorities under section 57(c) of the Local Government (Miscellaneous Provisions) Act 1976, a council can ask for information regarding directorships, conviction recorded against the company, and details of any previous record as a licence holder. These are the limits of council’s powers. 2.3.1 Radio Circuits An operator is a person whose business it is to provide facilities such as offices, staff, telephones or radio communications for the invitation or acceptance of bookings for a private hire vehicle. Many taxis are fitted with radio systems allowing the driver to pick up fares who have contacted the base from which they operate. Private hire cars must operate through a firm as they can not ply for hire in the street or at ranks. The operators will organise the provision of equipment and booking services in return for a hire charge and commissions, leaving the driver to charge the customer the fare. They may also manage account customers, collecting the "fares" on contract agreements with local authorities, large companies, regular customers etc. In these circumstances the fares may be paid direct to the firm, on a weekly or monthly account. The firm then pays the fares to the driver (less hire charges and commissions) at monthly intervals. Account customers are also, as a general rule, charged an administrative fee. Taxi drivers who belong to a radio circuit will not normally preclude themselves from picking up cash customers at ranks or accepting a fare if flagged down. Private hire vehicles are normally dependent on belonging to a firm as they may only accept work placed by telephone or by the client calling personally at the base of operations. The operator of a private hire base may be required to retain the following records of hirings, for a minimum of twelve months, although conditions of licence particulars will vary: * Time of hiring * Name and address of hirer * How the booking originated * Time of pick-up * Point of pick-up # Destination # Name of driver and/or call sign # Vehicle used # Remarks, including details of any sub-contract to another operator. Licensed operators for the private hire side may undertake to set the fare tariff under which their drivers operate. Radio circuits for taxi cabs both outside and inside London will be subject to the fare tariffs set respectively by the local council or in London by the Secretary of State for Transport. Trade sources suggest that where radio systems are available levels of engaged mileage will be in a range of 55% to 60%. Without radio systems, taxi cab operators will be subject to local demands. 2.3.2 Operator Terminology. Firms: This is the most wide spread term in common use throughout the UK, to describe operators. Bases: In Northern Ireland however businesses are more often known as bases. Fleet Operators: This term is almost strictly associated with the London trade, save for those very few companies that own all their own vehicles, and therefore could be termed a ‘fleet’. Co-operatives: Co-operatives in England and Wales usually hold operator’s licences if private hire or mixed fleet, and may hold operator’s licences if solely taxi, if the council has fallen in line with the R - v- Franklyn Carter decision. Agencies: Inspectors may come across the term agency in connection with taxi or car hire businesses. The word ‘agency’ is not defined in any taxi, private hire or PCV legislation. The only place ( outside the ‘black cab’ trade in London) where the term ‘agency’ is used is that in common usage by Customs and Excise in defining the method of operation of a private hire or taxi company. An operator, whether it be a sole trader or limited company, may trade either as agent or principal, or indeed both, but solely in the context of VAT liability. Any reference by a Tax Inspector when approaching an operator which suggested that he/she was an agent, could undoubtedly lead to confusion. 2.4 Others Inspectors should also be aware that there are thousands of ancillary workers linked to the trade: telephonists, radio operators, clerical and administrative staff, mechanics, vehicle cleaners - all of which by their employment would tend to suggest that in examination of accounts, such ancillary employees would indeed feature. Where they do not, Inspectors should give consideration to the possibility of ‘off record’ cash wages. Consideration of PAYE legislation must also be given, there are many examples of part-time use of drivers as, for example radio operators. Once they leave the drivers seat and work within a firm as an ancillary worker, they fall under PAYE rules. 3. Legislation and Regional Variations in Methods of Operation. In this section we furnish you with statutory definitions of the trade sectors where applicable, coupled to brief descriptions of relevant operational licensing regulations, as appropriate. Section 2 has already provided statutory definitions of: * Drivers * Proprietors and * Operators 'Hackney Carriage' Hackney carriage" has the same meaning as in the Act of 1847." - as stated in the Local Government (Miscellaneous Provisions) Act 1976. Hackney carriages in places such as Birmingham, Manchester and Liverpool are readily comparable to the black cabs of London, although obviously they are licensed under completely separate legislation. However, outside the major conurbations many of these vehicles are saloon cars, and as such are indistinguishable from private hire vehicles in many respects, and indeed are commonly found working on mixed fleets of vehicles, i.e. private hire and hackney carriage, so that the delineation between the trades is even more indistinct. PCV’s (Passenger Carrying Vehicles). PCV (Passenger Carrying Vehicle) is the modern term for PSV (Public Service Vehicle). These vehicles are covered by the Passenger Vehicle Act 1981. Under the Local Government (Miscellaneous Provisions) Act 1976, "a private hire vehicle means a motor vehicle constructed or adapted to seat fewer than nine passengers, other than a hackney carriage or public service vehicle." It is clear from the wording of this section that indeed, you can have a public service vehicle seating less than nine passengers. Although broadly PCV/PSV are the bus industry, a vast number of private hire firms operate minibuses which increasingly are being licensed as PCV’s. These are licensed in this way for two obvious reasons: firstly, it allows the use of vehicles which have more than eight seats (the limit to which local authorities can license); and of course, 12 seats gives more versatility of transport services offered. Secondly, to circumvent - if that is the word- the need for local authority licensing; even the smallest firm may have two vehicles so licensed under a restricted licence easily available from the Commissioners of Transport. More than two vehicles would require an ‘open’ licence which requires the employment of a person with a Certificate of Passenger Transport competence - which is not uncommon in the private vehicle hire trade. Ordinary saloon cars may be operated under PCV operator’s licence, as long as separate fares are offered to the passengers, and the commission of those fares can be initiated by the passenger direct to the driver. Most firms which have PCV vehicles do so under restricted Traffic Commissioners’ licences which limit them to two such vehicles. However, much larger operators who have different types of unrestricted PCV licences do exist. There is now a growing number of bus companies which also run taxis, albeit licensed as such, examples are to be found in Derby, Nottingham and Leicester to name but a few areas. Taxi Buses. A taxi bus is a vehicle licensed under section 10 of the Transport Act 1985. Inspectors may come across these strangely licensed vehicles in rural areas, where no bus services exist. A taxi proprietor operating in these areas may apply for, in addition to their hackney carriage licence, a special PCV licence under section 10 which allows them to operate at separate fares, which normally taxis are not allowed to do. In addition, a licensed taxi may be used to operate a ‘Local Service’ under section 12 of the Transport Act 1985, under which section the vehicle is not a PCV when being used as a taxi, and the operator applies for a special restricted PCV ‘O’ licence. Schemes such as these were tried briefly in Portsmouth, but apparently without much success. Regional variations .Let us now look at the more general regional situations. For ease of reference we have categorised this section under the following headings: 3.1 A general section on Taxis England and Wales (outside London). 3.2 A general section on Private Hire Vehicles, England and Wales (outside London). 3.3 Statutory definitions as applicable to Scotland. 3.4 Statutory definitions as applicable to Northern Ireland. For details specifically concerning London Taxis/London Private Hire Vehicles (see London Part II). 3.1 General Taxis Outside London, England and Wales Taxis In England and Wales, where taxis are licensed, this is done by the District Councils in accordance with the 1847 Town Police Clauses Act. There is no rule or legislation which insists that local authorities must license taxis. South Derbyshire does not; and there are other areas where local authorities have delegated the licensing of hackney carriages to other areas - for instance Langbaurgh, whose taxis are licensed by Middlesborough; the same is true of Gillingham and Rochester, the Medway towns, and Rochford in Essex, which is licensed by Southend Borough Council. Blaby, Broadland, Teesdale and Babergh are amongst other authorities which appear not to license any taxis. Drivers The District Council responsible for granting drivers a licence has a duty to satisfy itself that the applicant is a "Fit and Proper" person, although this phrase apparently has no statutory definition and therefore can be construed by different Councils in different ways. A number of councils determine suitability according to the same categories as the PCO in London that is to say:- * A criminal record check (a provision allowed under the Road Traffic Act 1991, and available from 1st of April 1992). * A medical examination. * A topographical knowledge of the area to which the licence is to relate. * A driving test. Section 47(1) of the local Government (Miscellaneous Provisions) Act 1976 states:- "A District Council may attach to the grant of a licence of a hackney carriage under the Act of 1847 such conditions as the District Council may consider reasonably necessary." This section deals with the licensing of hackney carriage vehicles, and although it is generally accepted that there is no section under the Local Government (Miscellaneous Provisions) Act 1976 which specifically deals with hackney carriage drivers’ licences, the two are surely indivisible, and it is clear that most councils outside London require exactly the same conditions of licence for taxi drivers as they do for private hire drivers. As far as maximum and minimum age conditions are concerned, the Local Government (Miscellaneous Provisions) Act 1976 stipulates that the applicant must be the holder of a full UK driver’s licence for at least 12 months. No maximum age is specified, but some local councils impose an upper limit of 70 years of age. Around 87% of Local Councils appear to require that a medical certificate be produced with the first application for a licence and may insist on further examinations beyond the age of 55, but certainly after 65 years of age. The Medical commission on Accident Prevention issued a 1995 up dated guide for Medical Practitioners ‘Medical Aspects of Fitness to Drive’, the ‘red book’. Many councils are adopting the precepts of the red book and applying Group II medical standards. At least 50% of Councils insist that licence applicants undertake some sort of topographical knowledge test, although the standard will vary from Council to Council. Some Councils may combine the knowledge test with a driving test. About 75% of Councils renew the driver’s licence on an annual basis. Vehicle licences also tend to be of 12 month duration. Fees tend to increase each year. Some councils automatically increase fees to keep pace with inflation. As a rule of thumb, councils are permitted to recover the whole of their costs (but not more), but are indeed allowed under section 53(2) and section 70(6) of the Local Government (Miscellaneous Provisions) Act 1976 to remit the whole or part of any fee chargeable for the grant of a licence in any case they think it appropriate to do so. Some Councils may also make additional charges for a first application to cover costs on items such as any driving or knowledge test they may require. Licence fees are probably one of the least ‘constant’ features in a driver’s accounts. Currently licence fees in relation to a vehicle average somewhere between £150 and £170 per annum. However, there are so many councils that charge less than this figure, and so many that charge more, that this average has to be taken very much with a pinch of salt. Controls on fares Most Local Authorities set a table of fares to be charged by taxis although they are not obliged to do so, and as previously stated there are examples of several who do not. Many also require that taxis have meters fitted. Some authorities review fares on a regular basis; others only when pressure is put upon them by the taxi trade to do so. There is no recognised method for an authority to determine how taxi fares levels should be set. Instead fare levels in different areas have simply evolved over a number of years. The fares set are generally considered to be the maximum charged and a lesser amount may be requested by the driver. Some authorities however treat the metered fares as mandatory. In England and Wales, there is at present no right of appeal against a local authority failing to set or increase taxi fares. However, such a right of appeal is granted under Scottish law. Taxi ranks District Councils "may from time to time appoint stands for taxis on any highway in the district which is maintainable at public expense and, with the consent of the owner, on any land in the district which does not form part of the highway..... and may from time to time vary the number of taxis allowed at a each stand". This is a quote from the Act of 1847 which suggests that ranks are maintainable at public expense. However, under the Local Government (Miscellaneous Provisions) Act 1976 at section 70(1) (b), a local authority is granted the power to recover such sum as may be sufficient in the aggregate, in whole or in part, "the reasonable costs of providing hackney carriage stands". It is required by some Councils that taxis not actually on hire should proceed to the nearest rank. This is generally done to prevent them from cruising around or plying for hire while they are parked. Taximeters Where Hackney Carriages are used, and where meters are used, the local Licensing Authorities usually test the meters on an annual basis over a measured mile. Where the fare tariffs are set by the Local Authorities both initial calibration and re-calibration, following a fare change, are normally undertaken by the appropriate local Taxi Licensing Office. Meters should be sealed but it has been reported by some Authorities that this may not always be the case and that it can be a simple matter to tamper with and adjust the calibration. The local taxi licensing officers can however carry out spot checks and generally they report their belief that the majority of cab drivers are honest and do not tamper with the meters. Some councils do not set fare tariffs for taxis. 3.2 General Private Hire Vehicles Outside London, England and Wales. The Local Government (Miscellaneous Provisions) Act 1976 gave power to the Local Authorities to control the private hire trade. Since the Act is largely enabling, however, the degree of control varies between areas. In many areas the control is exercised under a licensing requirement for vehicles, drivers and operators. Where vehicles are licensed, the licences are renewable annually but drivers’ and operators’ licences may be issued for longer periods. Apart from those councils which are included under the Metropolitan Police area, it is believed that all councils have now adopted the Act. Criminal record checks are made by the vast majority of local authorities, and certainly outside London, private hire vehicles are subject to exactly the same tests as are required for taxis licensed in the same area. In addition, Councils may well subject vehicles to quite stringent tests which go beyond the main criteria of the MOT. It is likely that a commitment to extend wheelchair accessibility to the private hire trade may be sought, perhaps making the provision of a swivel seat a condition of licence. Such swivel seats currently cost around £500 and some councils have already introduced provision as a condition of licence, notably Stafford and Oxford. Controls on fares Fares for private hire vehicles are not subject to control, and whether meters are fitted or not is the responsibility of the operator. A private hire vehicle fitted with a meter must not be used for hire in a controlled district unless the meter has been tested and approved by or on behalf of the relevant Council. Meters Where private hire vehicles have meters installed, the local licensing authorities may undertake an annual check, although with individual operators setting down their own tariffs, it can be difficult for the taxi licence officers to check calibration. Operators must let the authority know when the fare changes so that the new fare can be entered and the meter re-sealed. 3.3 Statutory definitions as applicable to Scotland In Scotland, under the Civic Government (Scotland) Act of 1982, and interpretations at section 23, we find the following: "23.- (1) In sections 10 to 22 of this Act:- "Taxi" means a hire car which is engaged, by arrangement made in a public place, between the person to be conveyed in it (or a person. acting on his / her behalf) and its driver for a journey beginning there and then: and "private hire car" means a hire car other than a taxi within the meaning of this subsection. 2) In subsection (1) above, "hire car" means a motor vehicle with a driver, other than a vehicle being a public service vehicle within the meaning of section 1(1) (a) of the Public Passenger Vehicle Act (1981), which is, with a view to profit, available for hire by the public for personal conveyance (3) Notwithstanding that a vehicle in respect of which there is a licence for its operation as a taxi is, on any occasion, engaged as a hire car other wise than in the manner referred to in subsection (1) above, the enactment relating to its operation as a taxi, and to the driving of it as such, (Including any such enactments in this Act), shall (nonetheless apply in relation to it; and that other manner of engagement on that occasion shall not itself cause the operation or driving of the taxi to be regarded for the purposes of this Act as the operation or driving of a private hire car within the meaning of subsection (1) above." To put not too fine a point on it, whereas under the Local Government (Miscellaneous Provisions) Act 1976 there is clearly envisaged a situation where a hackney carriage can act as a private hire vehicle because of its method of hiring, the same clear cut distinction is not readily available in Scotland. Furthermore, Scotland is perhaps one of the few areas where the two trades tend to use similar demarcation lines as those in London. Therefore, it is less common to find mixed fleets in Scotland. Having said that, there are no operator licences in Scotland, which can cause considerable difficulties for tax purposes in identifying who is the proprietor of the company. 3.4 Statutory definitions as applicable to Northern Ireland In Northern Ireland, hackney carriages, private hire vehicles and drivers are licensed by the Department of the Environment under the Road Traffic and Vehicles, Motor Vehicles (Taxi Drivers Licences) Regulations (Northern Ireland) 1991, as amended several times, which legislation is under review at the time of this research; and has as an appendage various taxi bylaws of various dates covering Antrim, Armagh, Banbridge, Bangor, Belfast, Craigavon, Down Patrick, Lisburn, Londonderry, Newry, Omagh and Strabane. All licensed vehicles in Northern Ireland are categorised as PCV vehicles under this legislation. So in fact in Northern Ireland, the terms ‘hackney carriages’ and ‘private hire vehicles’ do not actually exist; all are taxis, some for public and some for private hire. Two different types of windscreen discs are issued: H denoting ‘A taxi licensed to stand or ply for hire on a road or public place, and P denoting ‘A taxi licensed to carry passengers for hire’. These are not the same as plates in England and Wales, and resemble ordinary tax discs in size. These regulations include powers which require all applicants for drivers’ licences to undertake a driving competency test, in the same way as drivers of heavy goods vehicles and buses do in England. Drivers may take this test from the age of 19. In addition, Northern Ireland has its own regulations with regard to PCV vehicles under primary legislation dating from 1985, number 123 Road Traffic and Vehicles, Public Service Vehicles Regulations (Northern Ireland) 1985 as amended numerous times, which are doubly relevant because they also contain all the rules for testing both taxis and private hire vehicles. There are no operators’ licences required in Northern Ireland. 4. Organisation, Type and Pattern of Work. The type of work undertaken by a driver, the hours worked and the pattern of those hours will depend on a number of factors and will differ between taxis and private hire vehicles. The London picture will be different from large provincial towns and cities which will in turn differ from small towns and rural areas. The findings of the National Travel Survey 1989/91 can however supply some general information on the pattern of usage in England and Wales. Some of the relevant findings from the latest survey are as follows: * The average journey stage in a taxi or private hire vehicle was 3.3 miles * Heaviest usage of taxis and private hire vehicles was found to be, not surprisingly, amongst people in households with no car or relatively poor access to a car. Women in the age group 16 to 59 in the lowest household income brackets were found to be significant users. * When people were simply categorised by income the survey found that taxi and private hire usage in most regions of England and Wales was greatest amongst those in the lowest income bands, except in London. * The survey found that Londoners travelled more miles by taxi and private hire vehicle than people elsewhere in Great Britain, parking difficulties being cited as one of main reasons. * Taxis and private hire vehicles are being increasingly used in connection with leisure journeys including those to and from drinking and eating establishments. A simple analysis of purpose of journey showed:- 54% for leisure purposes 22% for shopping and other personal business including for older people a significant number of hospital journeys 23% for work, education and escort purposes * Similarly an analysis of a sample of 5711 journeys identified:- Peak usage between 11 p.m. and midnight/leisure related. The next highest rate was the 7 p.m. to 9 p.m. period/again leisure related. Usage between 10 am. and 5 p.m. was stated to be fairly even/mostly shopping or other personal business. With an instinctive awareness of their area of operation and likely pattern of customer usage, most drivers will organise their work pattern to suit their own needs and requirements. Some may prefer to specialise in particular types of work, for example, regular airport work or peak-time night work to cater for the leisure sector. Others may wish to work a more standardised day and therefore concentrate on ranks, picking up the shoppers, or targeting hospitals, railway stations or hotels. Where work is obtained through a radio circuit or operator, there may be a predominance of contract work such as school contracts, large factories or firms, or special arrangements with certain night clubs, hotels or restaurants, etc. Taxi and private hire drivers in provincial areas may find that rather than being able to specialise they may be required more to consider a greater variety of work, but jobs will again be drawn from a similar range of passengers. Private hire firms may try to maintain regular contracts with large firms and businesses in the city, whereas others will continue to rely on whatever fares become available to them in the normal course of telephone booking requests. Referring back to Section 2.3.2 of this note and the understanding of the term ‘agency’ within the context of VAT legislation, the significance of this becomes more obvious when considering contract work as part of the operation of a business. Whether a firm acts as an ‘agency’ or ‘principal’, or both under VAT rules, will affect the tax structure of the firm. If in the course of an enquiry the banking records of a taxi firm are examined, Inspectors should be aware that although in the normal course of events you would expect to see a level of income derived by the company from its drivers, whether employed or self-employed, the vast majority of cash work never shows through the company’s books because it attaches solely to the driver; whereas there are some firms in the country that only do account work, and these companies will show a huge throughput of money through their bank accounts, which may or may not attach to either the driver or the company depending on the individual arrangements with the drivers. It is important that Inspectors are aware of the types of records which the majority of local authorities, certainly in England and Wales, oblige companies to keep. Section 2.3.1 refers, but to reiterate, there may be an obligation to keep records of bookings, and maintain these usually for six months. It may be sensible, for tax purposes, for operators to consider keeping these records for longer periods. The new rules introduced in the 1994 Finance Act (consolidated at S12B TMA 1970) of course mean that drivers, proprietors and operators of taxis, private hire vehicles and PCV’s will be required to keep all appropriate records. Inspectors dealing with individual drivers may require to check that the disclosed level of income is consistent with the level of work undertaken for the firm for which he/she works. Guidance on record keeping practices for the self-employed under Self Assessment are available to the public in the Inland Revenues leaflet SA/BK. 3 available from Tax Offices and Tax Enquiry Centres. Drivers may change their normal pattern of work to accommodate seasonal factors when there are significant changes in user demands. Examples of such seasonal factors might be:- * The build up of trade anything up to six weeks before Christmas. At this time, the volume of shoppers increases as shopping hours are extended with many special late nights. The party goers’ office lunch time functions; increased theatre activity; and increased visiting of friends and relations all serve to increase the volume of trade. * The pattern will continue peaking again on New Years Eve and the follow up of January sales. * Local holidays, bank holidays, market days, towns and cities affected by the tourist industry, university or college towns may all result in particular patterns of trade in specific regional areas and are all points which should be considered. * Some firms offer freephone facilities at places such as stations or large supermarkets or shopping centres. 5. Examining Accounts. Profitability in the Taxi and Private Hire Vehicle trade is generally measured in terms of the fuel:takings ratio. A review of the economics of this type of business should be a fairly straightforward matter, and is likely to turn on factual questions like:- * the fuel consumption of the vehicle * the cost of fuel in relation to the fares charged, bearing in mind local variations, and whether the driver obtains any discounts * the amount of engaged mileage * fare per engaged mile * tips received * private usage, etc. NB: The fuel debit and miles per gallon are incidental if the actual mileage of the vehicle is known. Although fuel to takings ratios may be a principal indicator it must be borne in mind that there are many factors which will give rise to significant local variations and Inspectors should use the experience they have gained in their own local areas. The taxi and private hire vehicle trade is primarily a cash trade. Experience will have taught drivers what is required in terms of income to cover the cost of the vehicle, overheads and living costs. 5.1 The Business Economics Model In order to calculate the fuel:takings ratio, the following stages should be followed:- Stage 1 From mileometer, service records etc Total miles driven x Engaged percentage = Number of working miles or alternatively where mileage has not been recorded Fuel debit in the accounts = Number of gallons x Miles per gallon = Total miles driven Price of fuel per gallon Stage 2 Number of working miles x Fare per mile = Net takings - plus tips and extras This of course is the model in its very simplest form and any necessary local variations would require to be built in. Inspectors may also wish to reflect a concept of "time" in particular, where there is a fare structure in place which comprises of two components, distance and time, Inspectors should carefully consider the concept of time and its effect on the overall fare per mile. 6. Factors Affecting Trade. The takings of taxi and private hire drivers alike, are tied to the level of paid or engaged mileage. There are a number of factors which may influence the trade of taxi and private hire vehicle operators and which require to be considered when looking at business economics namely: * Fuel Consumption * Engaged Mileage * Length of Trip * Tips, Commission and Extras We will also consider the circumstances which affect the trade in rural and semi-rural areas. 6.1 Fuel Consumption Fuel consumption analysis may be the greatest area of controversy when reviewing accounts. Most of the evidence will be anecdotal although Inspectors would expect petrol/derv invoices to be retained as part of the underlying records in support of the fuel debit in the accounts. There are however so many variables which have to be taken into consideration that it is difficult to suggest what can be done to verify driver’s claims. For example: * A wide variety of vehicles are used as taxis outside the London area and Private Hire Vehicles, both inside and outside London, come in all shapes, sizes and ages. * As vehicles age, engines may be replaced or rebored which will improve fuel consumption. * A reasonable guide to fuel consumption of new vehicles is the Department of Transport’s "New Car Fuel Consumption Tables". The mpg figures are however obtained under somewhat artificial conditions and are by no means a definitive statement. The manufacturers and the Trade Associations consider that considerably lower results can be expected for city centre driving. * Diesel vehicles are normally more efficient and economical than those which are powered by petrol driven engines. * The older the vehicle the higher the level of fuel consumption is likely to be and the standard level of maintenance of older vehicles will affect their efficiency. Most Local Authorities impose fairly stringent standards for licensing purposes, and to meet those demands, drivers will be required to maintain their vehicles in a reasonably fit state. * Inspectors sometimes find that whilst the fuel to takings ratios improve the amount of fuel used is falling. It is worth while making a rough evaluation of the general level of petrol/derv increases over the year and comparing the debit in the accounts with the "current price" equivalent of the debit in the accounts. If fuel consumption is falling there may well be some reasonable explanation but it should be sought and tested. * The type of area covered - i.e. predominantly hilly or flat. Where the area of operation is in a particularly hilly region where a driver might be involved in considerable amounts of low gear driving the effect on fuel consumption should be considered. * Certainly the area of operation will be significant in determining the level of annual mileage. A taxi driver operating in a provincial town or offering a particular type of service on a regular basis, for example, school pick ups in rural communities, will generally have a larger unoccupied or dead mileage than the driver of a vehicle operating as a rule in the centre of a city. Obviously an inner city vehicle will do a considerably larger number of jobs in a day than the rural car, but because their area of operations tends to be mainly within three or four miles of their operating base, their ‘dead’ mileage, i.e. when travelling unoccupied, is smaller as a percentage of mileage done; whereas in rural communities the dead mileage can very often be 50% of the mileage done to cover each job. * The numbers of available spaces at ranks varies in different parts of the country. * Some drivers claim that the fitting of a taxi sign to their roof can cause sufficient wind resistance to create an increase in the amounts of fuel consumed. * If the nature of the driver’s work involves regularly picking up full loads, perhaps shoppers from supermarkets with large quantities of groceries or regular airport work involving heavy luggage, then this might effect fuel consumption. Taxis will be able to compensate for such additional costs by charging the appropriate ‘extra’. Private hire vehicles do not commonly charge ‘extras’ this being a term which applies only to taxis. * Engines may be kept running in cold weather, especially by drivers parked up at ranks. * Another major aspect to be considered is the continuing and ever growing problem of traffic congestion. Some of these factors may be difficult to quantify in terms of the effect on fuel consumption or levels of engaged mileage. However, if we link fuel consumption with ‘engaged mileage’ and ‘length of trip’, there are some pointers which can assist. 6.2 Annual Mileage When a driver has a vehicle that is tested by local authorities or is required to produce an MOT certificate to the council prior to licensing, the test documents are retained by the local authority, and those documents contain a recorded mileage figure. Assuming that the driver keeps the vehicle 12 months, it will then be tested and the mileage will be recorded again. Although not a hard and fast rule, there is possibly one constant which can be ascertained, and that is the total mileage that the vehicle has done in any one licensing period. (Some councils test vehicles up to three times per year.) Some extremely high mileages can be covered. Vehicles have been known to do 100,000 miles in a year. In Glasgow, for example, many cars are operated on what are called ‘triple shifts’. Provincial average mileage’s are normally in the range of 45,000 to 50,000 miles per annum, but this could be as high as 80,000 to 100,000 in Glasgow. Local authorities can provide figures as to the number of licensed drivers in their district, which compared with the number of vehicles licensed, should give a picture of whether there is a high incidence of multiple shifting. Inspectors of Taxes should gain an understanding of the local trade base, results of similar traders in the area should be compiled. Although the factors arising from enquiries into any individual, partnership or company accounts, should be considered on their own merits, undoubtedly there will be similarities between businesses of the same type operating in the same areas. Those businesses whose accounts deviate from the pattern demonstrated by any comparative exercise may require to be looked at in more detail. Inspectors should make themselves aware of regional circumstances and variations by establishing the local conditions which govern taxi and private hire operations in their area. These may vary from region to region, or county to county. However, by contacting the relevant licensing authority, you will normally be able to establish information such as:- * Prevailing rates of fares, * Conditions for Hackney Carriage Drivers’ Licences, * Conditions for Private Hire Drivers’ Licences, * Conditions for Private Hire Operators’ Licences, * Conditions for Hackney Carriage Vehicle Licences, * Conditions for Private Hire Vehicle Licences. 6.2.1 Business Economics Based on Annual Mileage. If the annual mileage can be established the turnover figure can be calculated in line with the standard business economic model illustrated at Section 5. Rather than using the fuel debit in the accounts as the starting point the turnover may be recomputed from the established mileage figure.:- The Business Economics Model Annual Mileage ( adjusted for any private and or "dead" mileage) x The percentage engaged mileage ¸ The average length of one hire x The average cost of one hire = Total receipts To this can be added an agreed percentage for tips, say 10% and a figure for any extras. This method should give a more accurate turnover figure than using the fuel debit. Inspectors are aware that mileometers can however be altered. 6.2.2 Engaged Mileage It must be remembered that only a part of all annual mileage will be engaged mileage and the ratio of engaged to total annual mileage will be determined by the overall nature of the work carried out. The level of engaged mileage may also be affected by the driver’s ability to operate on sound commercial principles. Their ability for example to be in the most opportune place at the most opportune time. As with any other trade, experience always counts and good drivers may often take the time to consider such things as local events, for example: exhibitions; trade shows and other such circumstances, to benefit from the additional potential trade. The ability to locate a return fare will always have a bearing on the level of engaged mileage. Ideally all drivers would like to have return fares on every trip but the reality is that this is not always an option. Again it is important to consider both the area and nature of the work undertaken and the periods in which the driver chooses to operate. In rural areas, the majority of taxi fares are not charged on mileage, but pre-quoted. In these areas everybody knows that to go from village A to village B will be £xx; these fares apply regardless of the dead mileage a vehicle may have to travel to pick up the passenger. In simple economic terms, if your wheels are rolling with a passenger on board you are earning; if you sit at home, you earn nothing. Therefore, quite a lot of work-chasing takes place. This is true of the majority of tiny firms who only operate two or three vehicles. Obviously in the cities, the larger fleets have much more opportunity to make best economic use of their resources, and there may indeed be huge disparities between the amount of dead mileage claimed by a rural driver as opposed to a city driver. Private mileage must also be considered. If a full Road Fund Licence is displayed the driver is allowed to use the vehicle for private purposes. What about the usage by other members of the family? Following the test case, Yates v Gates, a taxi must always be driven by the owner of a taxi licence. But as far as we are aware, a private hire vehicle could be used by wives, husbands, sons or daughters as long as they hold a social and domestic insurance as well as private hire insurance. It may be relevant, therefore, for a driver to show as proof of private mileage their insurance cover note, which would give an indication as to whether private use is actually covered. Similarly unengaged mileage or dead mileage travelling to and from work may have some effect on the level of overall engaged mileage. 6.2.3 Effects of Tourism In cities where tourism is an important feature, the effects should not be ignored. The levels of hotel occupancy are monitored by the various tourist boards and by the hotel industry. A decline in tourism in the early part of the nineties was reported in the press as having had a pronounced effect on the taxi/private hire trade. More recent reports, however, indicate an up-turn in the tourism market and the levels of hotel occupancy. 6.3 Length of Trip The National Travel Survey 1989/91 reported that the average trip length by taxi or private hire vehicle in England and Wales was 3.3 miles. However, average figures are only a guide. Inevitably local circumstances and the nature of the work undertaken by any particular driver will determine their own particular average figure. It is supposed that those operating on radio circuits may have longer than average journeys. The type of work undertaken and the area covered are likely to determine the mileage undertaken by Private Hire Vehicles. 6.3.1 Taximeters and Milometers London taxis and many taxis operating in Local Authority areas will be fitted with a taximeter. Private hire vehicles are also nowadays likely to be metered although there is no statutory requirement for this, it will generally be at the operator’s discretion. The taximeters are likely to be electronic meters rented from the taximeter companies, since that type can be more readily reprogrammed to accommodate regular tariff changes, rather than the old style mechanical type. Electronic meters are also supposed to be more reliable and accurate. Taxi vehicle testing stations have reported that new meters are being used by some drivers which can provide all sorts of data relating to the activities of the vehicle. Some meters have the ability to total fares since the last time the information was accessed much in the same way as a ‘Z’ reading on a till. Proprietors / operators who subcontract their vehicles are keen on these new meters because they allow them to monitor each drivers situation. Arguably readings from such meters should be retained as part of the primary records required under the new rules introduced in the 1994 Finance Act. The most popular makes of meters in London are Sheriff, Halda and Lucas Kienzle (the latter more popularly known as the Argo); but there are any number of other meter manufacturers, and there are a growing number of European manufacturers coming into the field. The most relevant point here is that not all councils require the meters to be sealed: and if this is not a requirement, meter tampering is certainly a matter which must be considered. In London rental is usual but outside London the tendency is to buy a taximeter. For more details on predominantly London taximeters see Part II of this note. There is no legal standard governing the accuracy of milometers. However it has been reported by some of the major manufacturers that milometers should be accurate to within 5%, and that it is most likely that a greater degree of accuracy will be achieved. Where variation is stated to exceed 5% the cause would probably lie elsewhere. 6.4 Tips and Extras 6.4.1 Tips Few people take a taxi or PHV without expecting to tip the driver and, arguably, both taxi drivers and private hire vehicle drivers do somewhat better for tips than most people in service trades. The only known survey conducted into this subject was undertaken several years ago and so its findings may be of limited value. However, it suggested that 98% of all passengers tipped, and a fifth of them tipped more than 25% of the fare. Increasing fares and the falling value of money have made the "change from a pound" tip common. Trade sources suggest that the average tip in both London and the provinces is now probably just below 10%. 6.4.2 Extras Where tariffs set by councils are in place, fare tables will show the additional charges levied in respect of extra passengers, animals, luggage and journeys at night and at week-ends. The amounts involved per trip may seem small but an appreciable number of trips do give rise to extras. The 1989/91 National Travel Survey found that the peak time for taxi and private hire vehicle use was from 11 p.m. to midnight and estimated that the number of journeys started during that period countrywide averaged about 150,000 per night. In the small hours (midnight to 4 am.), not surprisingly 90% of all public transport journeys were made by taxi or private hire vehicle. Many councils have separate tariffs which comes into operation after midnight, and on public and bank holidays. This is quite a common feature and certainly at Christmas and New Year it is not unusual for private hire vehicles to charge double fare. There is also quite a high incidence of firms charging extra during extremely inclement weather. The advent of a heavy fall of snow will almost certainly result in 80 - 90% of all taxis and private hire firms disappearing from the streets; those who remain, however, charge passengers dearly for the privilege of hiring them. Obviously taxis are constrained by the tariffs set by the councils, and cannot make such onerous charges. Therefore the percentage of taxis disappearing when it is snowing is higher than that found in the private hire trade. Likewise, firms will not be slow to take advantage of situations such as bus or rail strikes . Postal strikes may also be advantageous as taxis and PHV’s may operate as couriers. 6.5 Rural and semi-rural operations. The NPHA have advised that in their experience rural and semi-rural operations are ‘marginal’ in terms of income. In these areas there are very rarely hackney carriage ranks or indeed, railway or bus stations; most of the operators tend to work from home, very often achieving incomes of £15 a day or less. Such services may have to compete with Community Services, often funded by the Rural Development Commission. Very often the service is offered as an add-on to other forms of employment. Many of these services rely on obtaining a school contract to keep the vehicle on the road. 7. Airports, and Stations The land at railway stations and airports, even the public approach roads, are usually owned privately and are under the control of the regional railway or airport authority or owner. The authority or owner of the land therefore retains the right to control the use of it and in many cases are able to charge taxis. The provision of a taxi service at airports and railway stations is an invaluable public service and an important source of income for drivers. 7.1 Airports Most airport authorities do make charges for the use of their land and other facilities by vehicles plying for hire but the types of arrangements and conditions applicable may vary greatly from one authority to another. At some airports the authority may grant a sole concession to one company. This could be PHV’s, as at Gatwick. In fact the British Airport Authority now franchises its airports to companies, effectively selling sole concessions to one particular firm, which excludes the plying for hire of local taxis at airports. Edinburgh, Newcastle, Stanstead, Gatwick, Cardiff, East Midlands and Blackpool are amongst those airports where these arrangements exist. The airport authorities have moved to this position to remove cross-border and local fare problems; but more importantly, because these franchises are given under contract, the airport authority can therefore control not only the quality of the vehicles used, but also ensure a level playing field for fares paid by passengers arriving at the facility. The crossing boundaries plays no part in setting such fares, mileage alone being the sole criterion allowed under such contracts. Information on Heathrow has been included in Part II. 7.2 Railway Stations In the same way as airports, sole concession ranks are to be found at railway stations. These ranks are usually marked out with white paint as a place for vehicles to stop and wait for their fare i.e. ‘delineated’. There are ‘delineated’ taxi ranks at all British Railways mainline stations and also at many suburban ones. In London, British Rail, the Docklands Light Railway and the Underground are prevented by legislation from charging taxis for plying for trade. Outside the Metropolitan area charges can be and are made. Stations outside London tend to operate what is known as an "open and charge" policy. If the taxi driver or operator is willing to pay a "reasonable amount" they can acquire from the local British Rail or Rail Track manager a permit allowing them to ply for trade. The charges for the permits are fixed by the local manager. There are also a number of ranks around the country where ranks are currently under the control of the local authority, Bristol Temple Meads and Peterborough for example. However under privatisation the picture is changing. For example, in Newcastle-upon-Tyne a local authority rank at the station was historically paid for by the local authority to British Rail; the local authority would subsequently recover that money by way of licence fees from the trade. Under privatisation the operating company has now taken the rank back from council control and is charging individual drivers an annual fee for the privilege of using the station. It is expected that this practice will become the norm as operating companies become more and more aware of this available source of income. 8. Inter-District Cross Border Issues The Government’s view is that PHV’s can take a booking from anywhere to anywhere so long as both the vehicle and driver are pre-booked, and licensed by the council within whose area the operator's office is situated. It is stressed however that this view is open to interpretation and will vary from area to area. Taxis can be hired in the area in which they are licensed to operate and from there can go anywhere in the country. However the taxi cannot ply for hire in the street or at a rank until it returns to its originating district. Some taxis do however remain in an area for which they are not licensed and both ply for trade at ranks or in the street. This is an illegal activity. A large number of councils have changed to Unitary Authorities, and in a lot of cases councils have initially zoned as a transitional measure i.e. where separate areas within their district have separate licences. This will apply to taxis to ply for hire, it does not affect PHV’s. Inspectors may find that in some areas, although taxis are licensed by a new Unitary Authority, more than one scale of fares is in operation. There are some joint licensing areas where two or more District Councils co-operate in a joint scheme. Examples of such joint operations can be found in Middlesborough and Langbaurgh as well as in Rochester and Gillingham. 9.Acknowledgements and Sources. Thanks are due in particular to the National Private Hire Association, Licensed Taxi Drivers Association and LTI Carbodies for their assistance in the preparation of this note. Special thanks are due to the Department of Transport who allowed some information in this note to be drawn from The Department of Transport’s Consultation Paper (October 1993). Information is reproduced with the Department of Transport’s kind permission. .......................................................................................

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