Government consultation published on tackling the hidden economy

In a bid to close the £2.2billion tax gap attributable to the hidden economy, HMRC has launched its latest consultation on expanding the scope of tax conditionality to new sectors. This initiative aims to target sectors most vulnerable to hidden economy actors and ensure increased compliance with tax obligations. Tackling the hidden economy helps to create a level playing field for legitimate businesses.

The consultation proposes to extend the scope of tax conditionality to the waste, animal welfare and transport sectors and responses are invited by 31 January 2025.   

Tax conditionality involves setting conditions related to tax compliance for individuals and businesses seeking to obtain or renew regulatory licenses (Environment Agency permits and private hire vehicle licences for example). It will ensure that licences and permits are not granted to individuals or businesses unless their tax compliance can be verified. 

For first-time applicants

When a business applies for a permit for the first time it may not have started trading. Therefore, for first-time applicants the tax conditionality requirements will mean that licensing authorities will be required to direct applicants to HMRC guidance on their potential tax obligations for undertaking the prospective licensed activity and the applicant will have to confirm it is aware of HMRC’s guidance on tax compliance and HMRC’s information powers. 

For licence renewals 

Applications for licence renewals will see far more scrutiny and a tax check will need to be undertaken before any licence application can be considered. The applicant will need to complete a short online tax check with HMRC before submitting their licence application. They will receive a code from HMRC on successful completion of the tax check to provide to the licensing body with their application.

Waste carriers, brokers, dealers and exempt waste management

The waste sector has been identified as particularly vulnerable to waste crime and hidden economy agents, with an estimated annual cost of waste crime of over £1 billion just for England. Collection and processing of scrap metal is already subject to tax conditionality checks.

The consultation proposes bringing a further 500,000 waste businesses within the regime by extending the scope to include: 

• Waste carriers
• Waste brokers
• Waste dealers
• Waste exemptions (waste operations exempt from requiring an environmental permit)

Animal Welfare Licensing

Animal welfare licensing covers a range of activities intended to protect animals from harm. The government has identified the following key areas to target its focus, with approximately 17,000 businesses potentially in scope:

• Dog breeding: anyone breeding, advertising or supplying 3 litters or more for sale within a 12-month period will be within scope
• Animal boarding establishments: any business that offers accommodation to other people’s dogs or cats, including kennels and catteries that are run commercially
• Pet selling: Any individual or business selling animals as pets in the course of business, including keeping animals with a view to them being sold or sold as pets 
• Although not considered in detail in this consultation, the government is also seeking opinion on implementation for other activities such as keeping and training animals for exhibition and licensed professional/commercial dog walking

Taxi/private hire vehicle sector

Tax conditionality has already been introduced for driving taxis or driving taxis and private hire vehicles, depending on territory. Following the successful implementation for drivers, the Government is now consulting on extending the scheme to cover specific vehicle licences to include taxi and private hire vehicles, including pedicabs, with an estimated 300,000 businesses potentially affected by the changes.

Such licences are held by the proprietor responsible for the vehicle, which can include:

• Owner drivers;
• Taxi and private hire firms
• Fleet providers. 

Businesses within the waste, animal welfare and taxi/private hire vehicle sectors should familiarise themselves with the proposals. They should consider whether the proposals are operable within the regulatory/licensing frameworks that apply and make submissions by 31 January 2025. This is in relation to any areas where they foresee difficulties or additional areas within their sector which they consider represent a risk of hidden economy and should be included within the scope of the new proposals.

In our opinion, the waste sector proposals are quite limited in scope and could be strengthened in their attempt to tackle the hidden economy by extending the provisions to cover all regulated sites. This includes waste transfer stations, waste recycling facilities, landfill sites, sites with recovery permits, and sites acting under the CL:AIRE code of practice.

If you wish to discuss how HMRC’s announcement affects your business or your proposed response to the consultation, please get in touch with our expert Jayne Harrold.

Approval code: NTAJ141124135