TICK TOCK: What you can do to prepare for new taxi tax checks arriving April 2022

Jonathan Yeomans, Head of Tax at untied, the UK's personal tax app, gives us the low down on the new tax checks being introduced for taxi and PHV drivers from next April...

With just four months to go until the introduction of HMRC's new 'conditionality' tax checks, the clock is ticking on the time you have left to make sure you are ready for the new rules that will apply to taxi and PHV licences from 4 April 2022.

'Conditionality' or 'tax conditionality' is the way HMRC describes these new tax check conditions. That's because a local authority's decision to issue a new licence will be conditional on the applicant having successfully completed a tax check.

Who is affected by these new rules?

These changes will affect all taxi drivers, private hire vehicle drivers, and businesses operating in these sectors.

HMRC estimates that the first tranche of conditionality measures will significantly impact around 400,000 self-employed drivers in England and Wales in the first 12 months. Specifically, the following licences will be subject to a tax check:

• Taxi driver licences

• Private hire vehicle (PHV) driver licences

• PHV operator licences.

There are also similar rules being introduced for scrap metal dealers.

Whilst initially these rules will only apply in England and Wales, the Government is planning to extend this process to drivers in Scotland and Northern Ireland from April 2023, impacting a further 50,000 businesses.

These are big changes that have been in planning since 2016. HMRC is spending £9 million to implement these changes. Local authorities in England and Wales that administer these licences will also have a new role recording the outcome of the applicant tax check on their systems. HMRC estimates it will cost local licensing authorities at least £1.5 million to change their systems and processes to cope with these rules.

HMRC also says there will be continuing costs to businesses completing the tax check each time they renew their licence.

So, what exactly does this all mean?

The main changes are around licence renewals.

If you are a first-time licence applicant, you'll just be signposted towards tax information and you'll need to provide the local authority with confirmation that you understand your tax obligations.

However, if you are making a licence renewal application after April 2022, in that case, you will need to successfully complete a new 'tax check' before the local authority can renew your driver or operator licence. If you don't complete this tax check, you won't be able to renew your licence and continue trading.

The tax check involves the applicant logging into a new online portal that HMRC is building. You'll then need to navigate through various screens and enter details about your licence and tax status. This includes providing information about the type of licence you are applying for, how long you have previously held a licence, whether or not you are already registered for tax and confirmation that you've included your driver income on your previous tax returns.

If you have already registered with HMRC for tax and been correctly declaring your income then the tax check should be completed without any real drama and relatively quickly. This will then give you a special code that you should record and pass onto the local authority. That code is valid for 120 days.

Clearly, nobody wants to be caught out by these new checks and face a period when they cannot trade. However, sometimes things don't always go as smoothly as we'd like. We've highlighted below the three main reasons why things could go wrong for drivers.

If you’re not already registered for tax

The most important thing you can do in advance of these checks is to make sure you are registered for tax, if you need to be. Registering for tax basically means registering with HMRC to be within the self-assessment tax system.

If you are a self-employed driver, you should be registered with HMRC for self-assessment, unless you've only recently started working in this sector since 6 April 2021 or you earn less than £1,000 a year (before any expenses).

The rules say you should be registered by 5 October following the end of the tax year in which you started trading. So, somebody who was self- employed before 5 April 2021 should have registered for tax with HMRC by 5 October 2021. If that sounds like you and you haven't already registered then you need to get your skates on because it can sometimes take a while for the registration to be actioned by HMRC. If you haven't done this by the time you need to renew a licence after April 2022, it could cause a delay.

You can register for tax using a service like untied or at the HMRC website below: https://www.gov.uk/register-for-self-assessment/self-employed

If you haven’t previously declared your income

One of the final tax check screens will ask you to confirm if you have included your driver income on your tax returns. If you haven't done this when you should have then you will need to bring things up to date. There are people out there who can help you with this and our advice would be to sort this out as soon as possible. If you owe back tax then the longer you leave this the more you will have to pay in the long run, as HMRC will add interest to anything that you owe.

If HMRC IT systems are down

We all know that websites sometimes don't work and HMRC is no exception. HMRC has said it will be introducing safeguards so that if a failure of the HMRC website causes a problem for applicants then it could still be possible, in some circumstances, to proceed with the licence renewal.

In order for this exception to apply, the HMRC system would need to be down for a continuous period of five days or more. HMRC will be keeping a register of any days when the site is unavailable, but it is hopeful that this exception won't actually be needed.

An HMRC telephone support service will also be available for applicants who are unable to complete the tax check online.

Why are these rules being introduced?

The vast majority of drivers and taxpayers comply with their obligations and pay the tax that is due. In some sectors, people have fallen behind and HMRC want to close the gap to bring those people into the tax system and create a level playing field for all. This is significant timing – from 2024 there will be new obligations on self-employed people, including drivers, who will need to report income and expenses every quarter under a new tax system called Making Tax Digital for Income Tax. Providers like untied are using technology to make this as streamlined as possible.

Not many people would argue about helping to reduce the tax gap and bring extra money in for our public services, schools and hospitals. I guess we are just hoping that these measures don't put extra strain on an industry that is still suffering from the impact of the coronavirus pandemic and dealing with driver shortages. We have written to HMRC to remind them to be mindful of this when introducing these changes, and to make it easy for people to catch up on their tax obligations to bring them into good order.

What can taxi operators do to help mitigate the impact of these tax checks on their business?

For operators who have self-employed taxi or PHV drivers working for them, the risks from these new measures are obvious. If any of their drivers fail to complete a tax check successfully and have a period when they are unable to drive whilst they bring their tax affairs into good order, this could directly hit the revenue stream of that business, even if the delay is relatively short.

Many firms have hundreds, or even thousands of drivers, and they are often unaware of the tax status of their drivers because of the self- employed business model. April next year could therefore see significant disruption for operators, drivers, and customers alike. Operators can help to mitigate this impact by making sure their drivers know what they need to do and when they need to do it. We have asked HMRC to communicate with all stakeholders and let operators have material to provide to drivers about these checks, as operators will probably be the first point of contact for drivers, and well placed to provide information to drivers about these changes, if they are supplied with this material by HMRC. Operators can be integral to the successful introduction of conditionality. They have a vested interest in making sure these changes are introduced smoothly, as their revenue streams will be directly impacted if drivers do not follow the procedures correctly.

There are also some organisations who help operators get drivers checked in bulk, in advance of these checks. Making sure that drivers are already correctly registered for tax and helping to register those who are not, as well as helping to assist with any enquiries about bringing their tax affairs back into good order.

For example, untied is a UK based tax software company working with other taxi companies, as well as local authorities. We have a solution that could limit any risk by help both you and your team pass these checks, including in-built onboarding with HMRC and the ability to file without needing an HMRC login. Once we've identified if any of your team would in theory fail – we can help them take further steps to ensure they pass these checks, far in advance of April – including referral to trusted advisers if needed. This helps ensure operators have minimal interruptions to their service.

We know that these checks come at a tough time for taxi drivers and the industry, and that the last thing anyone wants is for more obstacles put in the way of drivers, but with advance planning and by not leaving things to the last minute, we hope that the industry can quickly integrate these checks into business as usual.

Jonathan Yeomans is Head of Tax at untied, the UK's award-winning personal tax app - designed specially to help sole traders to get on top of their taxes. untied is the only end to end app that enables users to link their bank accounts, makes tax sense of their transactions and files directly to HMRC. In February 2021, untied became the first end to end app recognised by HMRC for Making Tax Digital for Income Tax and enabled one of its users to make the first-ever open banking-enabled tax payment to HMRC. untied is regulated by the FCA, supervised by the Chartered Institute of Taxation and recognised by HMRC.