There was a consultation on the issues which closed in October last year, and HMRC has now published a summary of the points raised.

The consultation did not present firm policy proposals but sought views on the underlying principles of conditionality, the best approach to delivering this, and the services and sectors in which it could be an effective compliance tool.

HMRC received 21 written responses to the consultation and met with 14 stakeholders. The majority of responses agreed that HMRC should be focusing on new approaches to tackling the hidden economy, and recognised that conditionality could be an effective way to support compliance.

However, most responses were clear that any approach to conditionality must minimise burdens upon compliant businesses and providers of licences and business services.

One particular area of concern was the question of how effective conditionality would be if applied to business services, such as financial or insurance services. Some respondents were in favour of these proposals, whilst others felt this would impose disproportionate burdens upon service providers, and could have adverse consequences such as encouraging the non-compliant to bypass important services altogether.

Several felt that conditionality in these areas would not create barriers to the market but may lead to more people using business services incorrectly or avoiding them altogether. This would be problematic for service providers and businesses, might reduce service standards for customers and could have detrimental economic impacts.

HMRC also reported that a number of respondents provided feedback on the potential business impacts of moving to a conditionality approach. Whilst some felt potential burdens would be manageable others felt there were a number of specific impacts to be considered both for providers of businesses services and their customers.

Several respondents felt that the best way to approach this issue would be through introducing ‘grace periods’. This would involve third parties granting access to licences or services, including in cases where customers are not yet required to be registered. Information relating to these customers would be passed to HMRC at the point of application. After a defined period, tax-registration requirements would then be enforced as a condition of the relevant licence or service.

Following on from this initial appraisal, HMRC now says the government will develop further proposals on conditionality and explore options to trial conditionality through pilot activity.

HMRC says there is a good case for conditionality as a tool to prevent non-compliance, but that it recognises that conditionality must also minimise burdens for compliant businesses and providers of licences or services.

Any legislation to implement conditionality will be preceded by further policy development, testing and consultation with those likely to be affected.

Tackling the hidden economy: Conditionality Summary of Responses is available here.