Licence issuers doubtful tax checks will have significant impact
The House of Lords Economic Affairs Committee’s Finance Bill Sub-Committee held an inquiry into proposals for new tax checks on licence renewal applications. Witnesses were from the Institute of Licensing, National Association of Licensing and Enforcement Officers, British Metals Recycling Association, Licensed Taxi Drivers Association and Licensed Private Hire Car Association.
The Sub-Committee is looking at Draft Finance Bill 2020-21, focusing on three areas of the Bill, all related to the powers of HMRC:
- New proposals for tackling promoters and enablers of tax avoidance schemes;
- New tax checks on licence renewal applications; and
- Amendments to HMRC’s civil information powers.
During two sessions on Monday 12 October the committee took evidence from:
James Button, President, Institute of Licensing
John Miley, National Chair, National Association of Licensing and Enforcement Officers
Antonia Grey, Public Affairs and Communications Manager, British Metals Recycling Association (BMRA)
Steve McNamara, General Secretary, Licensed Taxi Drivers Association (LTDA)
Steve Wright MBE, Chair, Licensed Private Hire Car Association (LPHCA)
The sessions focused on the proposal for tax checks for licence renewals on taxi drivers and scrap metal dealers, to catch people who trade in the black economy or the cash economy and to ensure that they are paying the correct amount of tax on their income.
Session One: Institute of Licensing and National Association of Licensing and Enforcement Officers
It was notable that neither witness in this session had much information about the tax checks proposal and, although they supported the aim of it, both lacked enthusiasm about being asked to do HMRC’s work for them.
James Button (Institute of Licensing) told committee chair Lord Bridges of Headley, Conservative, that the proposal is a ‘reasonable approach’ but what percentage of people in these industries do not declare all their income to HMRC is probably impossible to answer. He said most people who are involved in these industries are law-abiding. John Miley (National Association of Licensing and Enforcement Officers) supports the aim to make all taxi drivers tax compliant.
Baroness Bowles of Berkhamsted, Lib Dem, wondered how straightforward the process of tax checks will be. Button explained it will be an online system, saying, in the case of a renewal, where they should already have been paying tax, the authority will be able to check, via the HMRC website or system. Miley said: “We have something like 360,000 taxi drivers licensed across the country. That will take some communication and will incur some costs to the local authorities, which will eventually have to pass them on to the drivers in increased fees.” He went on to say drivers are licensed for a year, some for two years and some for three years, so a driver may be operating outside the system for up to three years.
Miley told a sceptical Lord Forsyth of Drumlean, Conservative, that the proposal does not mean taxi drivers would declare all their income and ‘I certainly would not want licensing authorities to become a subsection of the tax-collecting unit either’. There is always potential for the proposal to drive dishonest people underground, particularly in the scrap metal trade. Many people drive taxis part-time, separate to a day job, through which they will probably already be known to the tax people anyway, so it will potentially be difficult to pin down who needs to pay tax and who does not. Miley candidly said he would ‘rather do without’ the proposal. But Button added that it might make people who are on the margins of dishonesty think twice. All applicants for renewal of a licence will be required to provide proof of registering with the tax authorities, stressed Miley.
Lord Forsyth suggested it is better to spend the resources that the committee witnesses will have to spend on implementing this piece of legislation, on finding the people who are driving illegally and getting them licensed.
Miley told Labour’s Viscount Chandos that his organisation has no plan to communicate the changes with affected parties yet and is waiting for HMRC’s guidance before starting. Button said every licensing authority writes to the licensees to remind them that their licence needs to be renewed. It can be incorporated into that process, he suggests. It can also be incorporated into the packs for new applicants. Miley sees no real barrier to his organisation carrying out a tax check and it will become part of the licensing regime, he suspects.
Lib Dem Baroness Kramer asked about any risk of dilution of the passenger safety remit of licensing by bringing other roles into the licensing process. Button replied that there is a small argument that, if people are dishonest in relation to their tax, you can legitimately ask how dishonest they are in relation to other areas of their life, but there will be no dilution of public safety, he stressed. He added: “It seems absurd to take this process forward for drivers and for private hire operators and to avoid the vehicle licensees—the hackney carriage and private hire vehicle proprietor licensees. It would seem sensible that those are brought into the fold, because ultimately it is about public safety, and those licensees are just as important in the public safety mix as the drivers and the operators.”
On scrap metal, Miley said the HMRC proposal has nothing to do with countering theft of metal (such as lead from church roofs). It certainly ensures that those who are licensed are within the view of the HMRC team but he has no idea whether they will actually pay what they are due to pay.
Lord Monks (Labour) asked which trades are next in line? Button thinks any other activity or business that is either licensed or regulated by local authorities. Alphabetically that ranges from acupuncturists to zoos, he said. Button, a solicitor, said it would not surprise him if at some stage in the future he had to tick a box and produce a note that he is a solicitor registered with the taxman. Miley suspects HMRC will ‘take the largest downwards’.
Miley told Lord Bridges that he suspects that the administration burden of the proposal will be more than the government estimate of £700,000 a year. He said: “We have over 360,000 drivers and 14,000 operators, and £700,000 does not seem a particularly adequate sum to reflect the potential problems that we may have and the costs that we may incur.” Button said the first year or two years would be more expensive because as these systems bed in it becomes easier to operate, so there will be a greater up-front cost than an annual cost thereafter.
Button explained to the chair that there is a mechanism whereby the process can continue if HMRC fails to provide the information that is required. These are effectively conditions precedent to the application being processed. If the applicant does not obtain this information, that is not a valid application. That would then not be processed and accepted by the authority. He argues that, as it is not a valid application, there is no refusal and therefore no right of appeal, but that is a point that licensing lawyers argue over to some degree, he said. Miley added that there are certain conditions laid out in the legislation whereby, if the information is not readily available from the tax authorities, we will be able to provide the licence. However, if there is a dispute and they are not able to agree the licence, we will have to refuse it, or refuse the application.
Button explained to Lord Forsyth that the requirement is to check that you are registered for tax. It is not to check that HMRC is happy with the tax you are paying or that you are happy with its assessment of the tax you should be paying. It is simply to ensure that you are within the purview of HMRC. Miley said it will not actually ensure that people pay their taxes, and later said: “This is hopefully not a first step in us being recruited to the HMRC team; we would expect this to be the end of the matter.”
Crossbencher Lord Butler of Brockwell, a former cabinet secretary, asked if somebody is a part-time taxi driver and has another job through which they are registered with HMRC, does that satisfy the new requirement for a licence? If so, it seems that HMRC may never know that they have a supplementary job as a taxi driver, the peer said. Miley suspects not, speculating that they will need to enrol as a self-employed person as well as having their other income, which may well be PAYE-registered anyway.
Session Two: British Metals Recycling Association (BMRA), Licensed Taxi Drivers Association (LTDA) and Licensed Private Hire Car Association (LPHCA)
BMRA’s Antonia Grey fears the proposal will not work, because a lot of the non-compliant operators in the scrap metal business are not licensed and therefore are not visible to HMRC. Steve McNamara said LTDA is happy to comply, although it is tackling a problem that does not really exist in his sector. Steve Wright, of LPHCA, said a big problem will be addressed by the proposal, this is with multinational companies paying drivers directly by IBAN transfers, there is quite a big black hole in the economy. The operators and drivers working legitimately are exploited by international companies that domicile their tax arrangements abroad.
Lord Bridges asked how much of the £35 million projected to yield from this proposal will come from scrap metal merchants. Grey said very little because the vast majority of them that are legitimately licensed will be tax compliant. McNamara said black cab drivers are all licensed and the government should focus on bringing people who use IBAN and ‘double-Dutch’ schemes into the tax system, instead.
Wright told crossbencher Lord Rowe-Beddoe said the checking process should be ‘fairly straightforward’. He said: “My understanding from my discussions with the Revenue is that it was just as simple as providing your UTR. At that point, you just add that to your licence application.”
Grey said it is the same thing for metal but there are a lot of people who are not online and are still digitally illiterate in the trade. There must be a secondary process in place so that can be done manually, and she is not sure that that system or that way of thinking is yet evidenced. She went on to say when the Scrap Metal Dealers Act came in, it had banning cash at its heart. We have seen a lot of cash payments going ahead, and it has got worse every year out from the Act, she said. There is not the funding in local authorities or police services to enforce the Act. She agreed with the committee chair that it would be better spending money on enforcing the Act than creating a new mechanism that will cost even more money.
What has HMRC done to help businesses understand their obligations, asked Baroness Bowles. McNamara replied that virtually everything to do with licensing now is done online, so we do not see a problem with drivers not being able to use the technology. Wright said that there is considerable avoidance by people working, in particular (‘ironically’) in the technology companies. They are doing the minimum of 16 hours or doing another job and not declaring it. A significant amount of money is lost to HMRC there. Wright made the point that it might mean that new people who were in the black economy would not want to enter the industry, because they would need to have a tax number.
Lord Forsyth asked: Why does having a tax reference prevent people from fiddling their taxes? Wright admitted that he does not see the proposal as a ‘catch all’ or a system or a mechanism to rein in the people who are just coming in and staying in the black economy.
Wright agreed with Lord Monks that the whole point is that by having the licence include the tax reference, it is a shot across the bows of the applicant taxi driver. Just as with immigration, the taxi person will think, ‘I have to comply with tax’.
McNamara told Lord Butler that there is no disadvantage, as far as he is concerned, in delays to licensing or anything else with the proposal. McNamara went on to say that HMRC would become aware that you, as an example, have a taxi or a private hire licence, and we would then expect that they would want to see some sort of declaration relating to that income in addition to your normal nine to five PAYE job or your other self-employed job.
Grey said the majority of her members are tax compliant but she is concerned that having to put the tax code on will encourage people to fall off and not renew their licences, so we will have more unlicensed operators.
Lord Forsyth asked who will pay for all this. McNamara struggled to see the cost implications for it. It is a box on a form that is digitally collected, which is then shared with HMRC, he said. Wright agreed that it cannot be massively costly to get a unique tax reference, which is one field in a database and one set of numbers on a form, and manage that in the HMRC’s portal.
Antonia Grey hoped that the local authorities and HMRC will do the lion’s share, but her organisation has already started communicating to its members about this to prepare them for what is coming up. That is what we do as a trade association, but I would expect it to be formally done through HMRC or the local authority. She said: “My biggest concern is that the system has to be resilient. We work on a three-year rotation, and 2022 is one of the big years. If anything goes wrong, there will be a lot of problems.”
Baroness Bowles said that HMRC claims that these proposals may create opportunities to drive up standards in these sectors more generally. Grey said tax compliance has nothing to do with standards. But McNamara said: “We have long argued that tax liability, tax payments and registration should be a condition of being fit and proper, and that certainly applies to operators. If you are fit and proper, you do not dodge your tax; you do not place yourself abroad to avoid tax liabilities in this country.”
Grey said her organisation is very keen to know why scrap metal dealers were particularly singled out or put on to the ‘guinea pig list’. We will have operators who will have something like 60 sites. The HMRC contact and all the tax coding will go from the headquarters, but the licence application will go from those individual sites, she said, which may cause problems.
Wright told Lord Forsyth that he does not ask people to provide a tax code to become members ‘because they would be doing it and nobody else would’. Lord Forsyth said if all his members are required to provide a tax code and it is as simple as that, HMRC could look to the people who are not his members.
Separately, Wright said HMRC already has mechanisms in place for checking mileage and assessing earnings according to mileage. He went on about his ‘pet hate’: if you have a company that is based offshore and you set up an app in the UK and you make your payments via credit card transactions, you can simply pay the drivers offshore by an IBAN. That has been common practice in the sector, he said.
Grey said: “Forgive me, because I am at risk of repeating myself, but the best way to uncover the hidden economy is to go after those who do not have a licence in the scrap metal dealers’ industry. They will be earning a lot of money and defrauding HMRC of revenue. This is fine, but it is not going to identify those who are outside the system. It is just not going to happen.”
By Hamant Verma