Regular readers of Weekly Tax Brief will know that we have frequently called on HMRC to take a more robust approach to tackling the hidden economy, which costs the UK £3.5bn in lost taxes each year.
We therefore welcome the new consultation published by HMRC on Tackling the Hidden Economy: Public Sector Licensing.
With a closing date for comments of 2 March 2018, the consultation addresses the possibility that traders renewing licences in the following sectors should have to prove that they are registered for tax:
- private security,
- taxi and private hire vehicles (PHVs),
- waste management,
- houses in multiple occupation (HMOs) and selective licensing in the private rental sector,
- scrap metal, and
- retail and trade.
A two-stage process is envisaged.
When new businesses in these sectors apply for their first licences, they will be encouraged to comply with their tax obligations and to inform HMRC as necessary. This means that tax registration shouldn’t delay new businesses getting started.
However, when a business comes to renew its licence, the licensing body will require confirmation that the business is registered for tax. The thinking is that, without proof of tax registration, the business licence will be withheld.
While HMRC is at pains to emphasise that only a small number of businesses are failing to meet their tax obligations, once finalised the new rules will apply to all businesses in these sectors. At a future date, the principles may be applied even more widely.
As they stand, HMRC’s plans entail a massive increase in red tape both for the businesses and the licensing bodies. Although HMRC emphasises its commitment to minimise the administrative burden, it’s clear that most of the extra work will have to be done by the individual businesses and by the licensing bodies which will have to be satisfied that the business is registered for tax.
While HMRC will be careful not to disclose confidential tax information to the licensing bodies, it’s clear that the UK’s tax authority will be developing new powers to inform licensing bodies not to issue a new licence if the business is not already tax-compliant. That will be a massive incentive to all businesses in these sectors to get their tax affairs in order within a year or so of starting business. There’s also the possibility that licences might not be renewed if a tax-registered business has not complied with all its tax obligations and so is not regarded as ‘fit and proper’.
This of course doesn’t guarantee that the Exchequer will receive an annual £3.5bn boost. An unknown proportion of the tax lost will be attributable to businesses outside these sectors. And some businesses will inevitably find ways around the new rules. After all, the UK has had MOTs and tachographs for a very long time yet school buses are still found without MOT certificates and tachograph abuse is still worryingly common.
Undoubtedly HMRC’s proposals will have a massive impact on businesses in these sectors. Whether that impact will be matched by an increase in tax collected remains to be seen.