Backhouse Jones Watermark

Financial standing and your Operator’s Licence – where do you stand?

16 January

The law requires an operator to be of the appropriate financial standing. The availability of finance is a continuing obligation throughout the lifetime of the Operator’s Licence, which will be specifically checked at the application stage (for new licences or variations to existing licences), the five-yearly renewal/continuation of the Operator’s Licence or if an operator is called to Public Inquiry.

Operators who fail to meet the financial standing requirements risk having their Operator’s Licence revoked by the Traffic Commissioner and, unfortunately, we are seeing an increasing number of operators who are failing to satisfy the financial standing requirements or who simply do not appreciate how financial standing is assessed and/or the sources of funds that will be acceptable. All of this puts the Operator’s Licence – and business – in jeopardy.

There has also been a recent announcement from the Senior Traffic Commissioner, which states that he expects more operators to struggle to meet the financial standing requirement in the short-term if the UK leaves the EU without a deal (although this is now unlikely).

Why is financial standing examined?

The financial position of an operator is considered to ensure that the operator has sufficient financial resources available to maintain its vehicles in a fit and roadworthy condition (thereby safeguarding road safety) and compete fairly with other operators, within the constraints of the regulatory regime.

Do I have to comply with the rules on financial standing?

Yes, all operators need to be of the appropriate financial standing to obtain or retain an Operator’s Licence and the availability of finance is a continuing obligation.

How much is required?

The current financial standing rates are:

  • £8,000 for the first vehicle and £4,450 for each additional vehicle for applicants for, and holders of, standard national/international Operator’s Licences.
  • £3,100 for the first vehicle and £1,700 for each additional vehicle for applicants for, and holders of, restricted Operator’s Licences.

New guidance is usually issued each January but recent amendments to the Senior Traffic Commissioner’s Statutory Document No. 2 “Finance” confirm that these rates will apply until 31 December 2020 (unless notified earlier).

When is it necessary to demonstrate financial standing?

An applicant for, or holder of, an Operator’s Licence must be able to demonstrate, to the satisfaction of the Traffic Commissioners, that they are of the appropriate financial standing upon application for a new Operator’s Licence or a variation to an existing Operator’s Licence, upon being called to appear at Public Inquiry, at the five-yearly review stage of the Operator’s Licence and on a continuous basis.

What does financial standing actually mean and how can applicants and operators satisfy the requirements?

The key test is whether the applicant for, or holder of, the Operator’s Licence can demonstrate that it has “available” capital and reserves equal to the required sum. “Available” is defined as “capable of being used, at one’s disposal, within one’s reach, obtainable or easy to get”. The Traffic Commissioner will therefore consider how much money the applicant or operator can access, how quickly and where from.

Can I use financial assets which are in my own name as evidence?

As a general rule of thumb, the evidence of financial standing must be in the name of the holder of, or applicant for, the Operator’s Licence and not held by any third party.

What evidence will be considered?

Typically, the evidence the Traffic Commissioner can take into account is set out in the Senior Traffic Commissioner’s Statutory Document No 2 “Finance” available on the gov.uk website here .

Primarily, operators are entitled to rely on their annual accounts provided that they are certified by a properly accredited person and if those accounts show capital and reserves over the financial standing figure. Usually, certification of those accounts is provided by an auditor and such certification is generally mandatory for companies with a turnover exceeding £10.2m but an operator can choose to have their accounts certified if they wish.

More recently, we have seen a move by the Traffic Commissioners to not accept the submission of certified annual accounts – they still want to check the cash reserves. (Whilst we do not agree with this approach, as we do not believe that the Traffic Commissioner has such a discretion in these scenarios, operators need to be aware that this may be the approach that the Traffic Commissioner takes with them.

If the operator does not submit certified annual accounts, the UK has exercised its right under EC 1071/2009 to allow derogations for additional evidence of financial standing to be accepted. Cash in the bank, available overdrafts and unused availability on invoice factoring facilities can all be used as evidence of financial standing, providing that these accounts are in the operator’s name. The Traffic Commissioner will check the funds available in these accounts over the last 3 months (in the case of an existing licence) or 28 days (in the case of an application) and take an average of the sums available.

However, other traditional routes of showing financial standing seem to be fading from acceptability by the Traffic Commissioners. Historically, some operators would seek to demonstrate financial standing by way of the availability of a working capital loan facility. These appear in the Senior Traffic Commissioner’s Statutory Document No. 2 “Finance” as an acceptable method of showing financial standing but, over the past 12 months, the Traffic Commissioners have required operators to draw down the funds from the loan facility to show that they are “truly available”. Another traditional method of demonstrating financial standing was through the use of unused credit cards in the operator’s name. Now, however, if the vast majority of the sum required for financial standing is being demonstrated by reference to credit card availability, the Traffic Commissioners are tending to refuse to accept this as evidence on the basis that credit card APR’s are often high and an expensive form of borrowing; the Traffic Commissioners therefore question whether such funds are “truly available” as they are likely not to be used. We have seen a similar story with Operator’s Licences held by sole traders or partnerships in which the personal funds of the sole trader or partners held in ISAs/Building Society accounts (which were previously acceptable) are no longer being accepted. We have also seen – in the case of existing licences – the Traffic Commissioners move away from allowing a third party to provide a statutory declaration confirming they have funds available for an operator.

Where can I get help?

If you already know you do not meet the required financial standing levels, you are obliged to inform the Traffic Commissioner. We can assist you in making the relevant notification to the Traffic Commissioner and requesting a period of grace to provide you with the much needed breathing space to get your HOUSE in order.

If you are unsure if you meet the financial standing requirements or just want to check for peace of mind, we can assess this for you from £395 + VAT per entity.

For further information, please speak with a member from our Regulatory Team on 01254 828 300.

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