New expenses rules may prove taxing for transport firms
Jim Wright, partner at corporate law specialist Shulmans LLP, assesses the potential impact of the 2016 Finance Bill on fleet operators
After April this year, transport operators may need to be mindful of how temporary and agency drivers are paid – or risk facing price increases from agency suppliers, or even liabilities to HM Revenue & Customs (HMRC).
Historically, transport operators have not had to consider what drivers are paid when they are not directly employed by the firm. The use of agency drivers is widespread across transport-related industries and regarded as a vital resource, particularly for companies with fluctuating workloads where employing a full team of permanent drivers just isn’t feasible.
The effect of this has been increased competition within the sector, creating price pressures which push the offered driver rates down to below an ‘acceptable’ commercial level. There has, however, been a tax-saving mechanism used by agencies that allows transport operators to get drivers at cost-effective rates, the drivers to receive a fair wage, and the agency to make a profit.
This has been made possible through tax allowances relating to travel and subsistence claims such as food and drink, and additional perceived expenses. Such expenses are very common in the transport sector, and can mean a considerable uplift to any net hourly wage if claimed on a regular basis.
The chancellor George Osborne’s 2016 Finance Bill, which comes into force in April, contains provisions that will remove these travel and subsistence allowances for drivers supplied through intermediaries such as agencies.
The removal of those allowances potentially means the tax-efficient ‘boosting’ of drivers’ net pay is likely to be significantly reduced, signalling possible price rises for users of agency drivers. Even worse, the possibility exists under HMRC rules relating to the transfer of any pay-as-you-earn (PAYE) debt in respect of drivers that this liability could pass to transport operators if travel and subsistence allowances are still claimed on the current basis.
While HMRC will most likely look to agencies first and transport operators second, many small agency suppliers may be unable to meet HMRC liabilities. HMRC inspectors may consider transport operators to have far deeper pockets when it comes to footing tax bills.
In extreme circumstances, where directors of transport operators have promoted or facilitated the use of such structures, HMRC could look to transfer the PAYE debt to the company directors.
Ways in which to avoid potential tax bill liability are complex and require specialist advice. However, here are some practical recommendations:
- Act now. Having a compliant supply chain or preferred supplier list takes time. With forethought it may be possible, with planning, to retain limited travel allowances in certain multi-site operations.
- Forward-thinking temporary driver suppliers can manage these risks, but are they currently engaged with the issues? Don’t merely rely on suppliers having accreditation with professional bodies as guaranteeing compliance. Review your suppliers and look for those with a proven track record and who have taken specialist tax advice for your benefit.
- Check that transport operators’ commercial arrangements with temporary driver suppliers offer sufficient protection. Individual depot managers may have signed the transport operator up to terms that are not known or fully disclosed to those named on the operator (O-) licence.
A key issue is who controls and supervises the temporary driver. O-licence holders need to be controlling and supervising such drivers. Be wary of suppliers who suggest that changing this control makes tax compliance ’easier’.
