On 8 December 2017 HMRC published a consultation document entitled Tackling the hidden economy: public sector licensing. The document looks at measures that make compliance with tax obligations a condition of obtaining certain licenses and introduce a need to check the tax status of an applicant as part of the application process for licenses. The document considers the particular licenses that would be suitable for this kind of measure and asks interested parties to comment on the suitability of the licenses for this purpose. The document also sets out methods by which tax registration checks could be administered and enforced.

The consultation document follows an initial consultation in August 2016 discussing the general principles of conditionality. A document summarizing the responses was published in March 2017. HMRC has already met small business representatives, the Local Government Association and tax organizations to discuss the proposals and discussions have also taken place with licensing authorities.

Specific licensing schemes that could be suitable for the measures are those related to the private security sector; taxi and private hire vehicles; waste management; houses in multiple occupation and selective licensing in the private rental sector; scrap metal; and retail and services (e.g. street trading and market stall licenses). These sectors are vulnerable to hidden economy activity and there are also broader benefits to widening the regulatory standards in the sectors.

In addition to these specific licensing schemes HMRC is also looking to develop forms of conditionality by working closely with providers of other business approvals. This could apply to parts of the construction sector including home improvement and repairs or internal building work and decoration. Much of the construction sector is not subject to specific licensing schemes but businesses in the sector use other services in carrying out their trade and may apply for membership of trade or professional bodies. Such professional bodies could for example be required to ask about tax registration of their members as part of maintaining professional standards.

New applicants for licenses could be pointed towards tax obligations and the checks could ensure that the applicants understand their taxable status and can register as soon as possible when trading. Checks should be applied for license renewals and evidence of tax registered status could be requested from applicants. The licensing authorities would not be required to provide advice to the applicants on their tax status but they could be pointed to HMRC for information and advice.

There would be safeguards to ensure that applicants are not required to register for tax earlier than legally necessary. HMRC is also looking for feedback on privacy issues and on ensuring that the new requirements for licensing authorities are minimized.

The UK government is exploring the possibility of a longer term plan for developing conditionality, of which these proposals would be just the first step. This could involve the integration of tax checks into more of the essential services used by businesses.

Comments are invited from interested parties including in particular local authorities and national bodies administering the relevant license, trade bodies, small businesses, individuals and professional bodies with the relevant knowledge of tax administration. The deadline for submissions is 2 March 2018.