HMRC launched a consultation in 2016 to seek views on the introduction of new sanctions to tackle the hidden economy. The sanctions include new penalties and the condition that businesses must register with HMRC before they can obtain business services or licences.
HMRC have announced that they intend to pilot a scheme that will prevent businesses from obtaining licences or services unless they are registered with HMRC. This scheme is intended to prevent non-compliant businesses from benefitting from a commercial advantage over their competitors.
Furthermore, it is proposed that serial tax evaders that operate in the hidden economy and fail to notify HMRC that they are trading will be subject to higher tax-geared penalties, based on their behaviour.
There will also be increased monitoring of taxpayers where HMRC discover that they have operated in the hidden economy.
Small businesses will be most affected by the focus on the hidden economy. The strategy has two main strands:
- to ensure that new businesses register with HMRC when they first start trading;
- and to stop businesses that are not tax compliant from obtaining licences and services from local government, limiting their scope to continue trading and to evade tax.
The hidden economy has always been a concern to HMRC and the new strategy seems to focus on the commercial aspects. By limiting the ability of non-compliant businesses to trade, it is hoped that all new businesses will register with HMRC and adopt the right behavioural practices from day one, including paying their taxes.