By Jyoti Onthriar ATT, Tax Associate Director
A 12-week HM Revenue & Customs (HMRC) consultation into the hidden economy – targeting sole traders and businesses in the waste, animal welfare, and transport sector – closed last month.
Although the Government has yet to publish a response, thousands of businesses may need to register with HMRC to continue working, under an expansion of tax conditionality.
What is tax conditionality?
Conditionality means the setting of requirements or standards regarding tax compliance on an individual or business when licences need to be renewed.
The main aim of conditionality is to help applicants for certain public sector licences better understand their tax obligations and by making ongoing access to their licences conditional on completing a tax check.
By doing so, HMRC aims to reduce the hidden economy tax gap.
The hidden economy tax gap was estimated at £2.2 billion in the 2022-23 tax year, equating to five per cent of the overall tax gap.
Some businesses may be operating within the hidden economy without realising it, enforcing tax checks will help them comply with their tax obligations.
HMRC estimates that the introduction of tax conditionality on the waste, animal, and transport sectors could impact 500,000 waste license holders and 300,000 taxi license holders, along with between 200 and 900 pedicab riders in London.
Up to 17,000 people within the animal welfare sector are also expected to be affected.
After the first application, they will not have to register again for three years. However, the requirement to register could add up to £700,000 in admin costs per year.
Could your business be affected?
If you have a relevant license and are not registered with HMRC, you might not be meeting your tax obligations.
Non-compliance could lead to further costs for your business down the line – so it is essential to get your tax affairs in order.
If you think you might be unknowingly operating within the hidden economy, it is important to act now. Contact us today for help understanding your tax obligations and handing communications with HMRC.
