From 4 April 2022 onwards individuals, companies or partnerships who work in the following sectors need to be aware of the need to obtain a tax check when renewing or applying for a licence to continue operating:
- Taxi drivers
- Private hire drivers
- Private hire vehicle operators
- Scrap metal sites
- Scrap metal collectors
What is a Tax Check?
As part of the process to renew or obtain a licence to operate, a declaration that the taxpayer is registered for tax will need to be obtained. Questions will be asked as to how tax is paid (for example, whether an individual is registered for self-assessment) and HMRC can use this information to check that taxable profits from the licensed trade have been properly declared.
The tax check must be carried out by the taxpayer themselves, so an agent cannot do this on their client’s behalf.
Once the tax check is completed a 9-character code will be generated and will then need to be provided to the relevant licensing authority at the same time the licence application is submitted. It is not possible for the licensing authority to process the licence application without the 9-character code.
One tax check code can be used for multiple licences and will be valid for 120 days from being generated.
Why has HMRC introduced this new measure?
HMRC believes there are many taxpayers who, for a variety of reasons, choose not to notify them of income received from the above sectors. It is expected that the introduction of this measure will force those who have not previously paid the correct amount of tax to come forward and make voluntary disclosures.
What to do if a disclosure is required?
This depends on the specific facts of the case and each should be considered on its own merits. For most cases, an online notification will be made to HMRC informing them of an intention to make a disclosure under the Digital Disclosure Service (DDS). On receipt of the letter confirming the taxpayer’s acceptance into the DDS HMRC allow 90 days for the taxpayer, or normally their advisor, to calculate the tax, interest and potential penalties due. Menzies approach is to also prepare and submit a separate disclosure letter to HMRC to explain the background and make representations on the taxpayer’s behalf.
The tax calculations can potentially go back up to 20 years depending on the circumstances of the case. The nature of the underlying “tax offence”, i.e., whether it is an error in a filed return or whether the taxpayer has failed to notify HMRC of a source of taxable income, in addition to the “behaviours giving rise to a loss of tax”, will all determine how many years to include in the disclosure.
In more serious cases then it may be necessary to consider making a disclosure to HMRC under the Contractual Disclosure Facility and Code of Practice 9 (COP9).
What happens if you do nothing?
If you need to make a disclosure and choose not to come forward, then you can expect HMRC to open an enquiry into your tax affairs once they use the data in their possession to link you to an undeclared source of income. The downsides of adopting this approach include:
- Not retaining control over the enquiry and facing uncertainty that can last many months or years.
- Higher financial penalties.
- The risk that HMRC will start focusing on other aspects of your tax affairs, even if there are no other issues to disclose.
If you would like to discuss voluntary tax disclosures please contact Menzies’ Tax Disputes and Disclosures team below: