New tax checks on licence renewal applications
Published 21 July 2020
© Crown copyright 2020
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/new-tax-checks-on-licence-renewal-applications/new-tax-checks-on-licence-renewal-applications
Who is likely to be affected
Individuals, partnerships (including limited liability partnerships (LLPs)) and companies applying for licences in England and Wales to either drive taxis or private hire vehicles (PHVs), or both, operate a PHV business or deal in scrap metal.
The measure also affects licensing bodies in England and Wales that administer those licence applications.
General description of the measure
Conditionality will introduce a check on tax registration (tax check) for renewed applications in England and Wales for licences to:
- drive taxis and PHVs (for example, minicabs)
- operate a PHV business
- carry on the business of a scrap metal dealer on a site
- carry on business as a mobile collector of scrap metal
An applicant who wishes to renew a licence will need to carry out a tax check. The licensing body (typically a local authority) will have to obtain confirmation from HMRC that the applicant has completed the check before being able to consider their renewed licence application.
Policy objective
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 collected by HMRC, and what is actually collected) is estimated to be £2.6 billion for 2018 to 2019.
The hidden economy also distorts competition and is linked to wider rule breaking and criminality, including money laundering, health and safety violations, failure to comply with employment rights and immigration offences. HMRC is committed to levelling the playing field for legitimate businesses and has a continuing programme of operational work to tackle the hidden economy.
Many people operating in the hidden economy do so because they are unaware of or confused about their tax obligations. If they have been hiding their income for a long period they are also likely to find it harder to come forward and tell HMRC that they are, or should have been, chargeable to tax (‘registered’).
Conditionality aims to address part of the hidden economy by helping applicants for certain public sector licences better understand their tax obligations and by making access to the licences they need to trade conditional on completing a tax check. It is an innovative, 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.
The government intends to consult on extending the principle of conditionality to other sectors over time.
Background to the measure
HMRC has conducted two public consultations on using conditionality to tackle the hidden economy. The first consultation on the principles of conditionality took place in 2016. The Summary of Responses was published on 20 March 2017.
The second consultation on how conditionality could work in practice was published after autumn Budget 2017 and proposed that access to some public sector licences could be conditional on proving tax registration. It sought evidence on the extent to which the government’s proposals would address risks posed by the hidden economy, whilst minimising administrative or other burdens for customers and licensing bodies.
Budget 2020 announced that the government will legislate in Finance Bill 2020-21 to make the renewal of licences to drive taxis, drive and operate private hire vehicles (PHVs) (for example minicabs) and deal in scrap metal conditional on applicants completing checks that confirm they are appropriately registered for tax.
Detailed proposal
Operative date
This measure will have an effect on applications made from 4 April 2022.
Current law
This is new legislation, there is no current tax law in this area.
Section 7 of the Taxes Management Act 1970 requires an individual who is chargeable to tax to notify HMRC within 6 months of the end of the tax year where they have not received a notice to file, or within 30 days of such a notice being withdrawn.
Paragraph 2 of Schedule 18 to Finance Act 1998 requires a company that is chargeable to tax, and which has not received a notice requiring a return, to notify HMRC within 12 months of the end of the accounting period.
Conditionality is designed to test compliance with these two obligations, where they apply.
The licences that will be subject to conditionality are issued under
- section 46 of the Town Police Clauses Act 1847
- section 8 of the Metropolitan Public Carriage Act 1869
- sections 9 and 13 of the Plymouth City Council Act 1975
- sections 51 and 55 of the Local Government (Miscellaneous Provisions) Act 1976
- sections 3 and 13 of the Private Hire Vehicles (London) Act 1998
- section 2 of the Scrap Metal Dealers Act 2013
Section 17(7) of the Transport Act 1985 and paragraph 1 of Schedule 1 to the Scrap Metal Dealers Act 2013 provide safeguards to ensure that, where a renewal application is made before the original licence expires, the original licence continues in force until a final decision has been made on the application, including a decision on appeal (or alternatively, in the case of the Scrap Metal Dealers Act 2013, until the application is withdrawn).
Proposed revisions
To help tackle the hidden economy, legislation will be introduced in Finance Bill 2020-21.
Conditionality will apply to applications made by individuals, companies and partnerships, including LLPs for licences to drive taxis and/or PHVs, operate a PHV business or deal in scrap metal.
Licensing bodies will be required 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. Where the application is not a first-time application (a renewed application) the licensing body must, before considering the application, obtain confirmation from HMRC that the applicant has completed a tax check.
An applicant will carry out a tax check by providing information to enable HMRC to satisfy itself that the applicant has 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.
Summary of impacts
Exchequer impact (£ million)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| - | - | +5 | +35 | +50 | +65 |
These figures are set out in Table 2.1 of Budget 2020 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is expected to have an impact on employed drivers and on drivers, PHV operators and scrap metal dealers who are self-employed. All of these individuals will need to complete a tax check when applying to renew licences in England and Wales. If individuals do not complete a tax check the licensing body will be unable to consider their application to renew their licence and their current licence will expire.
This could have an impact on family formation, stability or breakdown if individuals will no longer be licensed and individuals and their families would have less disposable income.
To mitigate this we will produce clear guidance and work with licensing bodies and industry representative bodies to make individuals aware of the new requirement.
Individuals experience of dealing with HMRC is expected to remain broadly the same as the tax check will be simple to complete.
Equalities impacts
The measure is expected to have an impact upon some licence holders in relation to protected characteristics of sex and race. Taxi and private-hire vehicle drivers are more likely to be men than women (98% in England in 2018/19 – Department for Transport Taxi and Private Hire Vehicle Statistics, England 2019).
It is likely that a significantly higher percentage of taxi and PHV drivers are from ethnic minority groups than the general working age population. This is based on statistics which show that a lower percentage of taxi and PHV drivers are from white backgrounds than the general working age population (42% of drivers in England were white according to Department for Transport’s Taxi and Private Hire Vehicle Statistics, England 2019 compared with 88% of the working age population of the UK according to the Labour Force Survey Oct-Dec 19 published 18/02/2020). There is no comprehensive data to show the proportion of people from all other ethnic groups combined within the taxi and PHV driver population.
Taxi and PHV drivers on average are older than the working age population of the UK. In England 40% of taxi and PHV drivers are aged over 50 according to the Department for Transport’s Taxi and Private Hire Vehicle Statistics, England 2019 compared to 32% of the UK population according to the Labour force survey.
Feedback from stakeholders suggested Gypsy, Roma or Travellers are particularly represented in the scrap-metal collector population.
HMRC will ensure that final policy design addresses the particular needs of anyone who holds these protected characteristics; in particular, through the provision of appropriate support and guidance.
We will also ensure that individuals who may be digitally excluded or need extra support are signposted to additional help, via established HMRC processes.
Impact on business including civil society organisations
The measure will have a significant impact cumulatively on around 400,000 businesses who are expected to hold licences in the relevant sectors by 2022 to 2023. Each time they apply to renew their licences businesses will need to use the new digital service or the alternative route provided for digitally excluded customers to demonstrate whether they have notified their chargeability to tax.
One-off costs will include familiarisation with the new requirement and could include updating internal processes and creating a government gateway account if the business does not have one already.
Continuing costs will arise from businesses completing the tax check each time they renew their licence. This includes gathering any necessary information to do this. The tax check will be completed online or via the alternative route provided for digitally excluded customers.
Customer experience is expected to improve as the tax check will give compliant businesses reassurance that HMRC is directly tackling their non-compliant competitors. It will also assist non-compliant businesses that wish to comply by directing them to support to get their tax affairs right.
This measure is not expected to impact civil society organisations.
Small and micro business assessment: The majority of businesses affected by this change are micro and small in size, since licensed drivers make up the greater part of the population affected by the measure. Omitting small and micro businesses from the change would negate the purpose of the measure. The measure is expected to benefit compliant micro and small businesses by preventing non-compliant competitors from gaining an unfair financial advantage. HMRC will ensure that small and micro businesses who may be digitally excluded or need extra support are directed towards additional help, via established HMRC processes.
The estimated average annual net increase in ongoing administrative burden is estimated to be £0.7 million.
Estimated one-off impact on administrative burden (£ million)
| One-off impact | (£ million) |
|---|---|
| Costs | negligible |
| Savings | - |
Estimated ongoing impact on administrative burden (£ million)
| Ongoing average annual impact | (£ million) |
|---|---|
| Costs | 0.7 |
| Savings | - |
| Net impact on annual administrative burden | +0.7 |
Operational impact (£ million) (HMRC or other)
HMRC is developing a simple online service for renewal applicants and licensing bodies to use. Additional support will be provided to applicants who need help to use the online service or who cannot use it.
The additional costs for HMRC are estimated to be £4.5 million for computer system requirements and £5.5 million for staff resources. Licensing body additional costs are estimated to be up to £1.8 million.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected licensing and trade sector groups and monitored through information collected from tax returns and undertaking the tax check.
Further advice
If you have any questions about this change, please contact ISBC Policy and Strategy by email: isbc.compliancepolicy@hmrc.gov.uk.