The consultation suggests licensing regimes which could be suitable for changes to introduce conditionality. It seeks feedback on their suitability for the proposed changes, and outlines ways that tax-registration checks could be administered and enforced.

The sectors under consideration include private security, taxi and private hire vehicles (PHVs), waste management, houses in multiple occupation (HMOs) and selective licensing in the private rental sector, scrap metal, and retail and trade.

HMRC says these have been selected because existing licence conditions align reasonably well with tax-compliance measures; they apply to sectors vulnerable to hidden economy activity; and there are broader potential benefits to be realised in driving up wider regulatory standards.

The consultation discusses the principles for how HMRC and licensing authorities should work jointly to ensure that those applying for licences are correctly registered. New applicants should be signposted towards tax obligations and HMRC services, with checks to ensure that they understand their taxable status and are able to register as soon as possible after they begin trading.

For those renewing licences, checks carried out at the renewal stage would ask applicants to confirm and provide evidence of their tax-registration status.

HMRC says the process for carrying out tax registration checks should be led by self-declarations and evidence from the person applying for the licence. In practice, this would mean the applicant would need to tell the licensing authority whether and how they are registered for tax and provide simple confirmation of this as part of licensing processes.

There would be no requirement upon licensing authorities to carry out more detailed tax checks, and the government would not expect licensing authorities to provide advice to applicants on their tax status. Applicants requiring particular support or advice could be directed towards appropriate HMRC services.

Where an applicant for a licence renewal declares that they are registered for tax, but does not provide the required evidence to support this declaration, then licensing authorities should refuse to process the licence.

To support the process for administering tax-registration checks, HMRC says it may need new powers to allow the tax authority to disclose certain information to licensing authorities about applicants or licence-holders. For example, information could be provided to a licensing authority where HMRC thinks an applicant may have deliberately provided it with false information.

In addition, HMRC may need new powers to tell a licensing authority where it finds that a licence holder is operating in the hidden economy or where it finds that a person is operating in a relevant sector without a licence.

HMRC points out that the suggested process for carrying out tax-registration checks is permissive for first-time applicants. Those requiring a licence to trade will face no hard barriers at all until they come to renew a licence.

In practice, this means that new businesses would be given a reasonable period of time to register for tax and get their affairs in order before they need to demonstrate any evidence of their registration status to a licensing authority. There may also be a period of grace for those renewing licences to show their tax affairs are in order.

The government says it would like to explore the potential for these proposals to act as a first step in a longer-term roadmap for developing conditionality. This could, in time, see simple tax checks integrated into more of the essential services or platforms that businesses use to trade, as part of the move to tackle the estimated £3.5bn tax loss from the hidden economy.

The consultation closes on 2 March 2018.

Tackling the hidden economy: public sector licensing is here.

Report by Pat Sweet