On 7 November 2018 the UK government published a summary of responses to the consultation entitled Tackling the hidden economy: public sector licensing, launched in December 2017.

Consultation document

The original consultation document examined measures to make compliance with tax obligations a condition of obtaining certain licenses and to introduce checks on the tax status of an applicant as part of the application process for licenses. The document also set out methods by which tax registration checks could be administered and enforced.

The consultation document suggested that specific licensing schemes that could be suitable for these measures were those related to the private security sector; taxi and private hire vehicles; waste management; houses in multiple occupation; selective licensing in the private rental sector; scrap metal; and retail and services (e.g. street trading and market stall licenses). These sectors were considered to be vulnerable to hidden economy activity.

HMRC also considered developing forms of conditionality by working closely with providers of other business approvals, so granting these approvals would also be conditional on compliance with tax obligations. New applicants for licenses could be reminded of their tax obligations and the checks could ensure that the applicants understood their taxable status and could register for tax as soon as possible when trading. Checks could 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 the applicants could be pointed to HMRC for information and advice.

The document suggested that the government was 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 received

The comments from interested parties were mostly supportive of the principle of conditionality proposed in the document. This process could bring people out of the hidden economy and help to deal with issues around tax compliance in the relevant economic sectors. Commentators considered that the success of the policy would depend on its design. Some licensing schemes covered by the consultation would be more suitable than others.

Tax registration checks would be best introduced as a mandatory check that licensing authorities would need to complete before processing a licence application. The licensing authorities should refer first time applicants for licences to the HMRC guidance about their tax obligations. A tax-registration check would be appropriate later when renewing a licence.

Some commentators recommended verification of the information provided by applicants as it would not be enough to rely on self-declarations from applicants. This could be done by using digital services or by submission of documentation. Most respondents considered that a licence renewal should not be approved if no evidence is provided to support the tax-registration check.

Commentators considered that there would be some set-up and running costs involved in implementing conditionality but if the requirements are kept simple these will not be significant.

Government response

The government will consider legislating in Finance Bill 2019 to 2020 to introduce a tax registration check linked to licence renewal processes for some public sector licences. Applicants for licenses would need to provide proof that they were correctly registered for tax before being granted the licences. This process would make it more difficult to continue operating in the hidden economy and would therefore create a level playing field for compliant businesses.

HMRC also intends to develop a digital platform to provide an easy-to-use method for people checking their tax-registration status, with other methods of support for those needing further help with the process.

Before introducing legislation HMRC will work with interested parties to find the best approach to implementing the conditionality requirements.