A significant number of contracted drivers are included within the 4.8 million people who are classed as self-employed in the UK. In April 2020, the tax rules for this group of people will be subject to change, as IR35 is applied throughout the private sector.
For driving agencies, the application of IR35 is a significant change. Previously, agencies supplying drivers identifying as limited companies have been able to offer lower hourly rates to their customers. This is because they are essentially paying a company for a service rather than an employee through payroll, and so are not required to pay employers’ national insurance or provide workplace pension contributions. A consequence of the new IR35 legislation is that these agencies can no longer contract drivers via the limited company ‘off-payroll’ model and are now required to employ drivers as employees, paying employers’ NI and maintaining a workplace pension scheme.
However, this change is not only pertinent to the agencies utilising the ‘limited company’ model, but also their customers, as all employers are legally obliged to ensure that anyone working for their business (including agency workers) are not infringing IR35 rules.
What is IR35?
IR35 is a tax legislation which is aimed at identifying individuals who are avoiding paying the tax that HMRC believes is due. Introduced to the public sector in 2000 by PM Gordon Brown, IR35 was designed to tackle ‘disguised’ employment whereby contractors and their hirers take advantage of the tax efficiency of working through a limited company.
How will IR35 affect employers?
From April 2020, private sector employers will be responsible for determining whether a worker is ‘inside’ IR35 (effectively an employee) or ‘outside’ (operating as a genuine contractor).
The rules now apply to all public and private sector companies that meet two or more of the following conditions:
- you have an annual turnover of more than £10.2 million
- you have a balance sheet total of more than £5.1 million
- you have more than 50 employees
Employers will need to decide the employment status of a worker, for every contract that is agreed with an agency or worker. Employers must:
- pass their determination and the reasons for the determination to the worker and the person/organisation you contract with;
- make sure they retain detailed records of employment status determinations, including the reasons for the decision and fees paid
- have measures in place to deal with any disagreements that arise from their determination
From a driving agency perspective, the IR35 legislation will also mean that those agencies who previously used the ‘limited company’ model will now incur additional costs associated with maintaining employee safety; the necessary PPE will need to be provided, as well as regular health and safety training and required medical assessments such as eye tests. Previously, these costs could be avoided as the driver was not an employee of the agency, but rather a contractor employed by a separate limited company. To offset this increase in employee costs, it is likely that charge-out rates to customers will need to be adjusted.
How will IR35 affect contracted drivers?
Essentially, the application of IR35 means that self-employed drivers can no longer operate as ‘off-payroll’ contractors via the limited company model, and instead must be employed directly by the driving agency. What’s more, the driving agency becomes responsible for providing the driver with a workplace pension, PPE and necessary medical assessments.
Working as a self-employed contractor providing services through their own personal service company has historically enabled an individual to make substantial tax and NIC savings. IR35 legislation means that driving contractors and intermediary workers will no longer be able to self-assess their employment status, meaning that the unclear rules surrounding IR35 may cause unnecessary tax and national insurance contribution (NIC) payments.
If you work in a sector which HM Revenue & Customs (HMRC) deems to be particularly at risk of non-compliance, including the haulage industry, or have records of inconsistent tax payments, you may be investigated under IR35 rules by HMRC.
Is your driving agency adhering to IR35 legislation?
If your driving agency is offering rates at hugely competitive prices, it is possible that they are employing drivers identifying as limited companies, and therefore not contributing to a workplace pension scheme, paying employers’ NI, nor providing their drivers with PPE and medical assessments. All employers have a duty to ensure that IR35 rules are not infringed, and therefore, if you suspect that the agency drivers provided to you are still acting under the old ‘off-payroll’ model, you must report it to HMRC or run the risk of prosecution.
How to stay compliant with IR35 legislation
To operate ‘outside’ IR35 as a genuine contractor, it is imperative that drivers and other self-employed individuals maintain proper standards of record keeping in relation to tax payments to ensure that you are not charged employee-level tax and NIC by HMRC.
Additionally, contractors must legitimise their business by maintaining work with multiple clients and having a separate office address and independent company website to help indicate self-employment for tax purposes.
Driving agencies, employers who contract driving agencies, and agency drivers are all liable for IR35 infringement, and could receive financial penalties for failing to declare the correct employment status or failing to contribute to employee subsidies such as a workplace pension.
If you are unsure about your employment status and want to check if you’re paying the right amount of tax, use HMRC’s ‘Check for Employment Status for Tax (CEST)’ online tool.
Drive Personnel is a leading independent recruitment and employment agency, specialising in the supply of temporary and permanent Class 1 and Class 2 HGV drivers to companies throughout the South Coast. We offer employment opportunities for drivers across Southampton, Eastleigh, Portsmouth, Gosport and Fareham and our positions range from LGV drivers Class 1, HGV Class 2 (C+E & C) drivers, 7.5 Tonne (C1), van drivers (B), HIAB and ADR drivers.