New IR35 rules impact agency driver use
Medium and large companies could now be liable for increased payroll costs if they have been using agency drivers engaged through a limited company, warns Claire Howarth of chartered accountants Novis & Co.
Speaking at the March Freight People online seminar, she said that the Inland Revenue regulation 35 (IR35) was being reformed so that responsibility for deciding an individual’s correct tax status had been moved from the individual to the end client.
Previously, workers could determine their own status, and could escape income tax and national insurance obligations by invoicing the client through their own limited company. The burden of tax was much reduced, as corporation tax and dividend tax were less than income tax and national insurance. Any liability for tax ended with the individual’s limited company.
From 1 April, this changes, she warned. Liability for unpaid tax, which could occur if it was determined that the relationship between the individual and the haulier was one of worker – employee, rather than the engagement of an independent service provider, could be chased up through the agencies, including master agencies, to end with the haulier/client. Small companies falling below certain financial and/or workforce size thresholds are exempt from the new rules.
Claire Howarth made it plain that the change would not impact on owner-drivers working as subcontractors as they were providing their own equipment.
HMRC provides an online checker to help ascertain status: gov.uk/guidance/checkemployment-status-for-tax
The change would result in extra tax costs of PAYE, NI, pension contributions, holiday pay, training costs and possibly the apprenticeship levy. To maintain driver net pay, agencies were likely to increase their charges to hauliers by 20 per cent.
The Road Haulage Association has released some advisory notes for transport operators, which can be found here.
Marie Walsh of Consilia Legal said she was sometimes asked to draw up contracts that would specifically deny an individual status as an employee or worker.
“Any contract must actually reflect real life,” she pointed out. “Sticking a salad cream label on a bottle of tomato sauce doesn’t turn the contents into salad cream. Likewise, if an individual is managed as a worker or an employee, then that must be reflected in their contracted status.”
She pointed out a case where after repeated instances of ‘bridge-bashing’ an operator was called before the traffic commissioner.
He denied any responsibility for the way the vehicles were routed or driven, as all his drivers were self-employed and could do as they liked.
This was a big mistake. Examination of the company’s handbook revealed that this was not the case. The drivers were not self-employed. They could not, for instance, send a substitute driver to do ‘their’ work, and they drove the operator’s trucks, not their own vehicles.
The TC had decided the operator was obtaining an anticompetitive advantage using fake self-employed drivers, and took it off the road. This decision was contested, but upheld by the Tribunal at appeal.
