A new tax check policy that could affect all drivers of taxis or private hire vehicles and companies operating a PHV business from April 2022, took another step forwards at this week's Budget.
The fresh measures come as HMRC looks to clamp down on lost revenue in the ‘hidden economy’. The new policy could also affect licensing bodies in England and Wales that administer licence applications
The hidden economy consists of individuals and businesses with sources of taxable income that are entirely hidden from HMRC. According to 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 £2.6billion for 2018 to 2019.
According to the new policy paper released on 3 March, 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 say they are committed to levelling the playing field for legitimate businesses and has a continuing programme of operational work to tackle the hidden economy.
This new measure will have an effect on applications made from 4 April 2022.
From this date 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 include a question about whether income from the licensed activity has been declared to HMRC, where the applicant was chargeable to tax.
The check will be completed when HMRC is satisfied the applicant has provided all information requested.
Where an HMRC failure prevents the applicant from carrying out their tax check or the licensing body from meeting its requirement to obtain confirmation of the completion of the tax check, the requirement on the licensing body to obtain that confirmation will cease to apply.