NEW 2022 HMRC TAXI TAX CHECKS: Accountants run through whether drivers should have anything to fear
Updated: Oct 31, 2021
With the new tax check policy entering the industry in April 2022, we ask... does the sector have anything to fear?
The new licensing measure comes as HMRC seeks to clamp down on lost revenue in the ‘hidden economy’.
The hidden economy consists of individuals and businesses with sources of taxable income that are entirely hidden from HMRC. According to HMRC this deprives the Government of funding for vital public services. The hidden economy tax gap (the difference between the amount of tax that should, in theory, be paid, and what is actually paid) is estimated to be £2.6billion for 2018 to 2019.
Jason Short, Short and Son Accountants Director, said: “Taxi specialists Short and Son Accountants believe the taxi (and PHV) industry has been targeted due to a small number of drivers vastly under-declaring their income, or not completing a tax return at all. The policy notes this is targeting Taxi, Private Hire, and Scrap metal dealers. We can’t remember there being another instance where taxi drivers are pooled in the same group as scrap metal dealers!
“As I am sure many readers are aware, in the most extreme case there are drivers who have relocated to other countries but come back for part of the year just for cash to take back abroad. Obviously, this is designed to bring them back into the fold tax- wise.
“Ironically, the rise of apps in the last 6 years has meant customers are far more likely to pay in-app or by card. This has made earnings far more transparent to the Government, and in our opinion, the 'hidden economy' in the taxi trade is probably at its lowest point in history and continuing to dwindle as expenses are on the rise.”
Paul Reed FMAAT, Reed Accountants Director, also confirmed HMRC’s intentions, saying: “The new conditional tax check will be brought in to reduce the number of tax evaders and a strategy to tackle the hidden economy. They are committed to levelling the playing field for compliant businesses, so those who meet their tax obligations aren’t disadvantaged, or undercut by those who don’t.”
The impact to taxi drivers currently licensed and completing their self-assessment tax returns should be minimal, but drivers should, as always, be mindful of the tax obligations they are under.
Jason Short said: “If you are working as self-employed and are filing your self-assessment you should have nothing to be concerned about.
“You should be aware though, that HMRC are always looking at people’s returns and it is up to you to demonstrate you are able to live on the amount of income you are declaring within your tax return. Another red flag is unusually high costs compared to the amount of income, typically in London this used to be £10 fuel per £100 income, but in recent years has increased to £12-15 of fuel per £100 income. Obviously, this varies depending on where you work, the vehicle, and the dead miles involved in finding a customer.
“As always, we recommend keeping all your receipts so you can prove your costs. We also recommend using a cloud drive to store them as they can fade or get lost over time.”
Paul Reed added: “HMRC has said it will take an online process that takes only a few minutes, therefore it should not impact many taxi drivers currently licensed and working unless they are the ones not declaring their income.”
So, should cabbies be fearful of the changes coming into effect next year in England and Wales? Overall no, unless of course you are currently not declaring your income, but there are still some unanswered questions.
Jason Short questioned how the tax checks would work for licensed taxi drivers currently not working as taxi drivers. Short said: “The big question is what happens to drivers who are renewing a licence but are working elsewhere? Drivers who are now working elsewhere might have an issue when renewing their licence if they have stopped being self-employed but wish to continue to hold a licence. This is especially pertinent in London where the Green Badge takes 4 or more years to complete at considerable cost to the driver.
“Could Transport for London (TfL) refuse to renew the much sought green badge if you are not registered as self-employed? We will need to wait to see how the policy unfolds between these governing bodies and hope the solution is fair to the applicant.”
Paul Reed added: “This is certainly nothing to worry about if you are already completing your self-assessment, it’s a very simple process and HMRC has said there will be extra support and guidance for those who require it.”
