The government is introducing new tax checks on licence renewals in the taxi and private vehicle hire and scrap metal sectors, in a bid to address issues with the hidden economy, and expects to see a £155m increase in tax paid over the next four years
The increased scrutiny on applications in these two areas is included as part of Finance Bill 2020–21.
It applies to applications for licences to drive taxis and private hire vehicles (PHVs), to operate a PHV business, or to deal in scrap metal in England and Wales from 4 April 2022.
Licensing bodies will have to signpost first-time applicants to HMRC guidance about their potential tax obligations, and obtain confirmation that the applicant is aware of the guidance before considering the application.
An applicant who is not a first-time applicant will have to carry out a tax check when they apply for renewal. The licensing body will have to obtain confirmation from HMRC that the applicant has completed the check before being able to consider their application.
The applicant will be required to provide information to enable HMRC to satisfy itself that they have complied with an obligation to notify their chargeability to tax, where such an obligation applied. The check will be completed when HMRC is satisfied the applicant has provided all information requested.
Where a HMRC failure prevents the licensing body from meeting its requirement to obtain confirmation of the completion of a tax check, that requirement will cease to apply. HMRC will also have discretion to waive the requirement where an HMRC failure prevented the applicant completing their tax check.
In cases where the licensing body has been unable to obtain confirmation of completion of the tax check for 28 days other than because of an HMRC failure (for example, where an applicant refuses to complete a tax check and therefore HMRC cannot provide confirmation that they have completed one) amendments to section 17 of the Transport Act 1985 and paragraph 1 of Schedule 1 to the Scrap Metal Dealers Act 2013 will cause the extended licence to expire.
HMRC estimates the hidden economy tax gap at £2.6bn for 2018–2019, and claims it distorts competition and is linked to wider rule breaking and criminality, including money laundering.
The tax authority says making access to the licences needed to trade conditional on completing a tax check is a cost effective and simple way to tackle this part of the tax gap and help level the playing field, making it more difficult for people to enter or stay in the hidden economy.
The government is considering extending this reform to Scotland and Northern Ireland in the future and will work with the devolved administrations to this effect.
It also intends to consult on extending the principle of conditionality to other sectors over time.
HMRC is developing an online service for renewal applicants and licensing bodies to use, at an estimated cost of £4.5m for computer system requirements and £5.5m for staff resources. Licensing body additional costs are estimated to be up to £1.8m.
Tax impact forecasts suggest the new tax checks will result in an additional £5m of tax paid in 2022–23, rising to £35m and £50m over the next two years to reach £65m by 2025–26.
Chris Sanger, EY’s UK head of tax policy, said: 'If this measure is successful, it may result in an increase in tax revenue through a reduction in the hidden economy, which would be welcome.
'But its importance is greater than the money it raises, as it embeds the idea that individuals and businesses who engage with the government must satisfy a prerequisite of being good taxpayers.
'We have seen such an obligation imposed in specific contexts in the past, but those have been specific measures, whereas this looks like the first part of a strategic, and potentially fundamental and wide-reaching change in the relationship between taxpayers and the UK government. It will be important that safeguards are put in place so that HMRC is not both judge and jury.'
New tax checks on licence renewal applications are here.
By Pat Sweet