Policy paper

Extending tax checks to licences in Scotland and Northern Ireland

Published 20 July 2022

Who is likely to be affected

In Scotland: individuals, partnerships (including limited liability partnerships (LLPs)) and companies applying for licences to either drive taxis or private hire cars (PHCs), operate a booking office or similar or deal in scrap metal.

In Northern Ireland: individuals applying for licences to drive taxis.

The measure also affects licensing bodies in Scotland and Northern Ireland that administer those licence applications.

General description of the measure

The measure will introduce a check on tax registration (a “tax check”) for renewed applications in Scotland for licences to:

• drive taxis and private hire cars
• operate a booking office
• carry on the business of a metal dealer on a site
• carry on business as an itinerant metal dealer

It will also introduce a check on tax registration (a “tax check”) for renewed applications in Northern Ireland to drive a taxi.

An applicant who wishes to renew a licence will need to carry out a tax check. The licensing body (a local authority in Scotland or the Driver and Vehicle Agency in Northern Ireland) will have to obtain confirmation from HMRC that the applicant has completed the check before being able to consider their renewed licence application.

Policy objective

The hidden economy consists of individuals and businesses with sources of taxable income that are entirely hidden from HMRC. The hidden economy tax gap (the difference between the amount of tax that should, in theory, be paid, and what is actually paid is estimated to be £3.2 billion for 2020 to 2021.

The hidden economy deprives the government of funding for vital public services, distorts fair competition between businesses and places unfair burdens on the compliant majority who pay their fair share of taxes. Many people operating in the hidden economy do so because they are unaware of or confused about their tax obligations. Others make deliberate efforts to evade or avoid paying their fair share.

HMRC’s approach to tax conditionality aims to address part of the hidden economy by helping applicants for certain public sector licences better understand their tax obligations and by making access to the licences they need to trade conditional on completing a tax check. It provides an efficient and simple way to tackle this part of the tax gap and help level the playing field, making it more difficult for people to enter or stay in the hidden economy.

Background to the measure

HMRC has conducted three public consultations on using tax conditionality to tackle the hidden economy. The first consultation on the principles of conditionality took place in 2016. The Summary of Responses was published on 20 March 2017.

The second consultation on how conditionality could work in practice was published after Autumn Budget 2017 and proposed that access to some public sector licences could be conditional on proving tax registration. It sought evidence on the extent to which the government’s proposals would address risks posed by the hidden economy, while minimising administrative or other burdens for customers and licensing bodies. The Summary of Responses was published on 7 November 2018.

The third consultation on how to implement conditionality in Scotland and Northern Ireland was published at Tax Policy and Consultation Day in 2021. The Summary of Responses was published on 24 November 2021.

Budget 2020 announced that from April 2022 the government will make the renewal of certain licences in England and Wales conditional on applicants completing checks that confirm they are appropriately registered for tax. This covered licences to drive taxis, drive and operate private hire vehicles and deal in scrap metal.

Budget 2021 announced that from April 2023 the government will extend this policy to the equivalent licences in Scotland and Northern Ireland.

Detailed proposal

Operative date

The legislative changes introduced will have effect on licence applications made in Scotland and Northern Ireland from 1 April 2023.

Current law

Current law is contained in section 125 and Schedule 33 to the Finance Act 2021 which provides for licensing bodies who administer applications for certain public sector licences to either:

• give information about tax requirements to first time applicants
• get confirmation from HMRC that a renewal applicant has completed a tax check

This current legislation relates only to licences in England and Wales.

Proposed revisions

Legislation will be introduced in Finance Bill 2022-23 to amend the table in paragraph 1(2) of Schedule 33 to the Finance Act 2021 to add similar licences which operate in Scotland and Northern Ireland.

In Scotland these are licences to drive taxis or private hire cars, operate a booking office or deal in scrap metal. In Northern Ireland this is a licence to drive taxis. This amendment has a commencement date of 1 April 2023.

The legislation will also make necessary consequential changes to section 3 of the Civic Government (Scotland) Act 1982 and paragraph 7 and 8 of Schedule 1 to The Civic Government (Scotland) Act 1982. These changes will clarify how tax conditionality and licensing legislation interact.

Applications for licences in Scotland must be considered and a decision made on the application within a fixed period, otherwise the licence will be deemed to be granted to the applicant. Amendments to section 3 of the Civic Government (Scotland) Act 1982 will clarify that this period begins once the licensing body has fulfilled its tax conditionality obligations, if applicable, for that licence application. This will prevent an applicant being able to have their licence deemed to be granted without completing the tax check.

In addition, when an applicant applies to renew their licence, their existing licence is extended until that application has been dealt with. If the licensing body is prevented from considering a renewal application by the requirements of tax conditionality (in cases where an applicant does not provide confirmation of completion of a tax check) amendments to paragraph 7 and 8 of Schedule 1 to the Civic Government (Scotland) Act 1982 will cause the existing licence to expire.

This will happen on either its normal expiry date, or, 28 days after the licensing body makes a request for further information from the applicant to enable it to fulfil its tax conditionality obligations, whichever is later. If the licence being renewed is a temporary licence, this time period is reduced to 7 days. This will prevent a licence being extended indefinitely as a result of the applicant failing to provide confirmation of the tax check.

Similar consequential amendments were made when the legislation was introduced in England and Wales. These amendments will ensure the tax conditionality rules are applied consistently for licensing bodies across the UK where licences are used to drive a taxi, private hire vehicle or car, operate a booking office for a private hire vehicle or car business or deal in scrap metal.

Summary of impacts

Exchequer impact (£million)

2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
Empty	Empty	Empty	Empty	Empty	Empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure is expected to have an impact on employed drivers and self-employed drivers, booking office operators and metal dealers. All of these individuals will need to complete a tax check when applying to renew licences in Scotland and Northern Ireland. If individuals do not complete a tax check, the licensing body will be unable to consider their application to renew their licence, and their current licence will expire.

This could have an impact on family formation, stability or breakdown if individuals will no longer be licensed as a result of failing to complete a tax check, and individuals and their families would have less disposable income.

To mitigate this, HMRC will produce clear guidance and work with licensing bodies and industry representative bodies to make individuals aware of the new requirement and prepare for the changes. The tax check is designed to be a simple test to confirm that licence applicants are appropriately registered for tax. HMRC will provide help for anyone that needs assistance to complete a tax check, or who needs to come forward and register in order to complete a tax check.

Individuals’ experience of dealing with HMRC is expected to remain broadly the same as the tax check will be simple to complete.

Equalities impacts

There is no publicly available demographics information for the relevant licensed population in Scotland or Northern Ireland, and our consultations have not identified the needs of the population to be different from those in England and Wales.

The measure is expected to have an impact on some licence holders in relation to protected characteristics of sex and race. This impact is indirect, since the measure will apply to all licence holders in these sectors regardless of sex and race. Taxi and private-hire car drivers are more likely to be men than women (93% in England in 2020 to 2021 – Department for Transport Taxi and Private Hire Vehicle Statistics, England 2021).

It is likely that a significantly higher percentage of drivers are from ethnic minority groups than the general working age population. This is based on statistics which show that a lower percentage of drivers are from white backgrounds than the general working age population (43% of drivers in England were white according to Department for Transport’s Taxi and Private Hire Vehicle Statistics, England 2021 compared with 86% of the working age population of the UK according to the Labour Force Survey July to September 2021, published 16 November 2021). There is no comprehensive data to show the proportion of people from all other ethnic groups combined within the taxi and private hire vehicle driver population.

Drivers are likely to be older on average than the working age population of the UK. In England over 40% of taxi and private hire vehicle drivers are aged over 50 according to the Department for Transport’s Taxi and Private Hire Vehicle Statistics, England 2021 compared to 32% of the UK population according to the Labour force survey September to November 2021, published 18 January 2022.

In line with the approach taken within England and Wales, HMRC will ensure that final policy design addresses the particular needs of anyone who holds these protected characteristics; in particular, through the provision of appropriate support and guidance.

HMRC will also ensure that individuals who may be digitally excluded or need extra support are signposted to additional help, via established HMRC processes.

Impact on business including civil society organisations

The measure will have a negligible impact on about 45,000 businesses who are expected to hold licences in the relevant sectors from 2023. Each time they apply to renew their licences, businesses will need to use the new digital service, or the alternative route provided for digitally excluded customers to demonstrate whether they have notified their chargeability to tax.

One-off costs will include familiarisation with the new requirement and could include updating internal processes and creating a government gateway account if the business does not have one already.

Continuing costs will arise from businesses completing the tax check each time they renew their licence. This includes gathering any necessary information to do this. The tax check will be completed online or via the alternative route provided for digitally excluded customers.

Customer experience is expected to improve as the tax check will give compliant businesses assurance that HMRC is directly tackling their non-compliant competitors. It will also assist non-compliant businesses that wish to comply by directing them towards support to get their tax affairs right.

This measure is not expected to have an impact on civil society organisations.

Small and micro business assessment: The majority of businesses affected by this change are micro and small in size. Since licensed drivers make up the greater part of the population affected by the measure, omitting small and micro businesses from the change would negate the purpose of the measure. The measure is expected to benefit compliant micro and small businesses by preventing non-compliant competitors from gaining an unfair financial advantage. HMRC will ensure that small and micro businesses who may be digitally excluded or need extra support are directed towards additional help, via established HMRC processes.

The estimated average annual net increase in ongoing administrative burden is estimated to be negligible.

Operational impact (£million) (HMRC or other)

HMRC will use the existing digital service being used by renewal applicants and licensing bodies in England and Wales to implement the policy. Existing support is in place for applicants who need help to use the online service or cannot use it.

The additional costs for HMRC are estimated to be £120,000 to make the necessary changes for implementing the policy in Scotland and Northern Ireland. Licensing body additional costs are estimated to be up to £196,000.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected licensing and trade sector groups, and monitored through information collected from tax returns and information about those undertaking the tax check.

Further advice

If you have any questions about this change, contact ISBC Policy and Strategy by email: [email protected].