HMRC has issued guidance on how the tax checks, known as conditionality, will work from April 2022 for licence applications initially in England and Wales. There are plans to extend the rules to Scotland and Northern Ireland from 2023.
HMRC believes that taxi drivers and scrap metal dealers are often part of the hidden economy, operating outside the tax regime, and has indicated that the scheme is likely to be extended in the future to cover more sectors.
In the technical brief outlining the original policy, HMRC stated: ‘The hidden economy consists of individuals and businesses with sources of taxable income that are entirely hidden from HMRC. This deprives the government of funding for vital public services. The hidden economy tax gap (the difference between the amount of tax that should, in theory, be paid, and what is actually paid) is estimated to be £2.6bn for 2018 to 2019.’
The new tax checks are projected to raise £30m in taxes in the first year of operation in 2022-23 with Treasury estimates indicating that this will rise to £55m by 2024-25.
The rules are changing for individuals, companies or any type of partnership applying for a licence for a taxi driver, private hire driver, private hire vehicle operator, scrap metal site and scrap metal collector.
Any individuals that make an application from 4 April 2022 will need to complete a tax check if they are renewing a licence; applying for the same type of licence previously held, that ceased being valid less than a year ago; and applying for the same type of licence already held with another licensing authority
The key element of the new system is a tax check which must be carried out by the individual applicant and cannot be conducted by an accountant or tax agent.
There will be a number of questions to identify whether the individual complies with tax rules and how they pay any tax that may be due on income earned from the licensed trade before a licence will be issued.
Once the tax check is completed and verified by HMRC, a nine-character tax check code will be issued. This must then be included with the application to the licensing authority, so they can confirm a tax check has been completed.
This will add extra administrative work for licensing authorities but there will be not costs for the HMRC checks.
