IR35: Tax changes for self-employed drivers are here

The Government’s clampdown on self-employed staff “off the books” – postponed because of the Covid crisis – are now in effect.

Essentially, it’s an attempt to crack down on tax evasion and avoidance by paying people as freelances when they should be paid as staff.

For our industry, lorry drivers have claimed to be freelances when in fact they were working for just one company: this means they weren’t taxed under PAYE rules or deducted the usual National Insurance contributions, therefore getting a higher take home pay and paying less tax.

The RHA’s Road Transport Tax Consultant Alastair Kendrick compiled these notes for us. Here’s a summary of what you need to be aware of:

1) Self-employed drivers
For a driver to be considered self-employed HMRC would expect them to be undertaking the work in their own vehicle – so not driving your truck and having their own operator’s licence.

It is the case that if the driver uses your vehicle, is told what to do and when to do it then HMRC will not accept that the driver is self-employed. You will then be liable to meeting any underpaid income tax and National Insurance together with interest and penalties.

2) A driver engaged a personal service company
You need to be comfortable that the driver is operating via a UK limited company otherwise you will be liable for PAYE and National Insurance on payments made.

If the driver is operating via a UK limited company, then you will have to prepare for the tax changes in April. If you are a medium or large company (for tax purposes) then for payments after 6 April, you will need to determine whether the driver is liable on the terms of your agreement to IR35. HMRC has produced the ‘CEST’ (Check Employment Status for Tax) tool on their website to enable you to determine the status of the driver.

If the result of the test is that IR35 applies you need to alert the driver and anyone in the supply chain, and then from 6 April 2021 operate PAYE and National Insurance on payments you make. If the test shows them to be outside of IR35 you can make the payment gross.

If you get the above process wrong then you will be liable to income tax, National Insurance, interest and penalties.

3) Drivers provided by Agencies
You need to be aware that HMRC may hold you liable if the payments made by the agency are not in accordance with IR35.  It is important to ensure that if the agency determined the status of the driver that they took all the relevant factors into account and they adopted the Check Employment Status for Tax tool provided by HMRC to make the ruling.  

It is also important to ensure that if the arrangement is considered to be within IR35 that the correct income tax and National Insurance is being deducted. It may be prudent to have a contract with the agency which holds them liable to any failures to comply correctly with IR35.

Further advice from Government here.