The importance of checking driver status against IR35

The RHA warns that in order to comply with new IR35 tax regulations announced in April, operators must check their driver’s status to avoid risk of HMRC fines.

 

As of April 6^th, haulage companies with a net turnover of over £10 million or with more than 50 employees, will no longer be authorised to hire drivers working as limited companies.

Now, drivers must be employed as PAYE (pay-as-you-earn) workers, whether that be by the haulier, agency or overarching company.

These changes make it easier for HMRC to prevent any tax evasion instances by moving responsibility from the limited company driver to the end client, who must then ensure their agency worker is legally employed within these new regulations. This, the end client, will then be made accountable for any underpayment of tax by the driver, and for deducting all relevant tax and NI (National Insurance) contributions at the source. 

Alastair Kendrick, Tax Consultant for the RHA has wanted self-employed drivers to fully ensure they meet HMRC’s definition of self-employed under IR35.

He comments: “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.” Also adding that if the driver uses the operator’s 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… 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 then for payments after 6 April, you will need to determine whether the driver is liable on the terms of your agreement to IR35 or risk being liable for PAYE and National Insurance on payments made.”

Additionally, HMRC has also produced its ‘CEST’ tool on their website for operators to determine the status of the driver. Kendrick highlights directly: “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,” he warned.

However, operators should also be mindful to check that agency drivers are provided by agencies that are UK registered, as if the agency is UK registered then the responsibility regarding the driver sits with the agency and not the operator.