Local Authorities Concerned Drivers Aren’t Ready for new Tax Conditionality Checks
The recent episode of our ‘What time you on ‘til?’ podcast, saw JP and Ryan talking about tax conditionality checks as one of the industry's biggest news stories. But based on concerns from licensing authorities, it seems many in the industry aren’t aware of the coming changes. Many councils are now running campaigns to raise awareness amongst drivers.
What is Tax Conditionality?
Tax conditionality is basically an additional tax check that needs to be carried out when someone applies to renew their licence. This check is carried out by licensees online via their HMRC account. They are then provided with a code to give to their licensing authority when applying for licence renewals. Under the new rules, licences will only be granted on the condition that this check has been carried out. This is why it’s called Tax Conditionality.
According to the HMC guidance, the rules only apply to people renewing their licences. The guidance states:
“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 decided to introduce these measures as part of their strategy for tackling the ‘hidden economy.’ The hidden economy is defined as activities where a person's entire source of income has not been declared to HMRC for tax purposes. This isn’t the same as tax evasion where individuals intentionally under-declare their income for tax purposes.
Government research suggests that nearly 5% of the UK’s working population is involved in the hidden economy.
Who do the new checks affect?
The new rules are being introduced in April 2022 and estimates from HMRC suggest the new measures will impact around 400,000 self-employed drivers in England and Wales within the first 12 months. The following licences will now be subject to a tax check when applying for a renewal:
Taxi driver licences
Hackney Carriage licences
Private hire vehicle (PHV) driver licences
PHV operator licences.
It’s important to note that a tax check will need to be completed for each type of licence that a person holds. For example, an operator who also wants to hold a private hire licence will need to complete a separate tax check when renewing each licence.
Initially, these rules will only apply in England and Wales, but the Government has plans to extend these checks to include drivers in Scotland and Northern Ireland from April 2023. These rules will only affect people renewing their licences and not those applying for the first time.
The Institute of Licensing produced a webinar last October that help tackle some of the big questions surrounding tax conditionality. Featuring several speakers from HMRC, as well as industry reps the webinar covers: The requirements and process (including prototypes of the online process); frequently asked questions; and where you can go for more advice for your tax compliance.
A long time coming
Tax conditionality has been on its way for a long time. The process for getting these checks introduced began back in 2015/16 and a report into the hidden economy was published in 2017. The draft guidance for the new rules was finally published in October 2021. Despite the new rules being a long time coming, it’s not just drivers who have been caught unaware.
Research by untied has shown that only 9% of councils said they were ‘totally prepared’ for the new rules. Less than a quarter of authorities said they were ‘well aware’ of the changes being introduced, even though the plans have been in the works for a while. However, with councils still dealing with the aftermath of the coronavirus pandemic, it’s perhaps no surprise they’re not ready for the changes.
The Costs
The new changes are going to cost HMRC in the realm of £9million to introduce. They consider this a cost-effective measure when compared to the estimated £2.6billion lost in tax in the hidden economy each year. For local authorities, it’s predicted that it’s going to cost them at least £1.5million to update their systems and processes to cope with the new rules.
If you’re in one of the groups that are going to be affected by these changes, it vital that you familiarise yourself with the new rules. It‘s a changing industry, and it can be hard to keep track of all the news and events. To be sure you’re up to date, make sure you follow us on social media to stay in the know. For a frank and unbiased discussion of industry news, you can also check out our ‘What Time You On ‘Til?’ podcast, available on all major platforms.