HMRC has used data provided by taxi-booking apps to identify taxi drivers who are likely to have under-declared their income from driving taxis or private-hire cars.
Many taxi drivers find their customers through online apps such as Bolt, Uber and Ola and HMRC, under its data gathering powers, can request relevant data from the app providers who facilitate transactions, which includes data that relates to the account that payments are credited into. This allows HMRC to request details of the drivers who have received payments through the relevant booking app.
It appears HMRC has exercised this power recently, and as a result it has identified individuals who may have under-declared their income from driving taxis or private hire vehicles. Over the next few weeks, HMRC is testing the water by writing to around 2% of the estimated 300,000 taxi drivers in the UK. HMRC has also made in very clear that the initial 4,500 drivers contacted will not be the end of its investigations into this sector.
Under-Declared Income: What HMRC want the drivers to do?
Where there appears to be undeclared income, HMRC will ask the taxpayer to make a voluntary disclosure using the HMRC’s online disclosure service. In such cases it would be prudent to seek advice from your accountant before attempting to make a declaration. The HMRC letter also asks the recipient to sign and return a certificate of their tax position within 30 days.
The Chartered Institute of Taxation (CIOT) advises that there is no legal obligation on the individual to complete the certificate of tax position and return it to HMRC. CIOT have warned that the period covered by the certificate of tax position, is not restricted to any one tax year and has no de minimis level.
HMRC have warned of the serious consequences of making a false declaration. If the individual believes their tax affairs are correct and up to date and they don’t need to make a disclosure, it may be better to respond by letter to HMRC rather than complete the certificate of tax position. In all cases the taxpayer, or their accountant, should reply to HMRC within the deadline to indicate what course of action will be taken.
Under-Declared Income: Licensing tax check
HMRC has stated that the data used to target the first batch of taxi drivers, has not been obtained from the licensing application tax check, although that check is referred to in its letter. From 4th April 2022 taxi drivers in England and Wales have been required to complete a tax check before renewing their licences (to be extended to Scotland and Northern Ireland in 2023).
To complete the tax check, the taxpayer has to log on to gov.uk using their government gateway account and they then need to answer a few simple questions about the type of licence they are renewing.
Under-Declared Income: Tax check quiz
A tricky problem for many individuals, when completing the tax check, will be the tax-related questions. Low Incomes Tax Reform Group has provided guidance on the tax check, including the likely tax questions that will be asked, such as:
- What is your tax status? (The answer is “employee” or “registered for self-assessment”.)
- What are your national insurance number and unique taxpayer reference (UTR) number?
- When did you start trading?
- Does your turnover exceed the trading allowance? (Over £1000 per year.)
- Have you included all of your income from your licenced trade on your tax return?
Once the taxpayer has provided answers to HMRC’s satisfaction, the individual is given a 9-digit code to include on their licence application. The licensing authority then verifies this code with HMRC before they will renew the taxi licence.
Under-Declared Income: What prompted HMRC to act?
HMRC is clearly targeting taxi drivers because they have an increasing amount of anecdotal evidence, that a significant percentage of them, do not declare all their income.
In recent years that have been a number of tax tribunal cases involving taxi drivers who have played the system. These range from drivers who manage to buy homes without a mortgage to drivers who take multiple expensive foreign holidays every year; all achieved whilst declaring income barely over the personal allowance, year after year.
Tax Accountant’s view
At my accountancy practice, we have around thirty taxi drivers, none of which declare a profit of any significance. I am constantly warning them of the consequences of suppressing their takings and to a man, they all smile sweetly and declare something along the lines of, “Not me Guv!”.
Well, I have news for you, Big Brother in the guise of HMRC is now coming for you, so if there is any possibility that you may have ‘forgotten’ to tell me about some of your earnings, you have now been officially warned.