Tax conditionality checks are one of the industry's biggest news stories. However, experts and licensing authorities don’t think enough people are aware of the coming change. Councils across the UK are now running campaigns to raise awareness amongst drivers.
What is Tax Conditionality?
Tax conditionality is essentially a tax check that needs to be carried out before your taxi, hackney or private hire licence can be renewed. This check is carried out online via an HMRC portal. You are asked to respond to 5 questions and make a declaration on your current and previous tax status.
Licensees are then given a code to share with their licensing authority when applying for their licence renewal. Under the new rules, licences can only be granted on the condition that this tax check has been completed. This is why it’s called Tax Conditionality. The rules only apply to people renewing their licences. According to HMRC guidance: “First-time applicants will not have to complete the check. Instead, licensing authorities will make sure they have access to HMRC guidance, showing them what they need to do in order to be properly registered for tax in the future.”
HMRC have introduced these rules as part of their strategy for tackling the ‘hidden economy.’ The hidden economy is defined as work where a person's entire source of income has not been declared to HMRC for tax purposes. This is different to tax evasion which is when individuals intentionally under-declare their income to avoid paying tax.
Figures for UK Government suggest that around 5% of the UK’s working population is involved in the hidden economy.
Who do the new checks effect?
From April 2022 the tax conditionality checks will be introduced by licensing authorities. HMRC estimates suggest these new measures will affect about 400,000 self-employed drivers in England and Wales within the first 12 months.
From April, the following licences will be subject to conditionality checks when applying for a licence renewal:
Taxi driver licences
Hackney Carriage licences
Private hire vehicle (PHV) driver licences
PHV operator licences.
Tax checks need to be completed for each type of licence that a person holds. For example, an operator who also holds a hackney carriage licence will need to complete a separate checks for each licence they hold.
Initially the new rules only apply to licensees in England and Wales. However, there are plans in place to introduce these checks to Scotland and Northern Ireland from April 2023.
A long time coming
Tax conditionality isn’t something new. The checks were first discussed back in 2015/16, leading to a report into the hidden economy being published in 2017. The draft guidance for the rules was finally published in October 2021. But even though these rules have been in the works a while, people have still been caught unaware..
Research by untied show that only 9% of councils were ‘totally prepared’ for the new rules. Less than 25% of authorities said they were ‘well aware’ of the changes being introduced. Considering councils are still dealing with the aftermath of the coronavirus pandemic, it's no surprise they’re not ready for the changes.