IR35 change opens dialogue on self-employed drivers

Medium- and large-sized businesses that engage self-employed staff may find that things alter from 6 April. That’s because of change to IR35 legislation that will apply to those companies.

It relates to off payroll working. The burden of assessing for tax purposes the employment status of any individual claiming to be self-employed through a limited company will fall to employers in those size categories.

But the topic of individuals claiming self-employed status is relevant to all operators. The use of self-employed drivers is now of interest to the Traffic Commissioners (TCs) through consideration of fair competition and repute.

Claiming bogus self-employed status via a limited company can lead to underpayments of tax and national insurance contributions. Under the change to IR35, the employer becomes liable for those if an employee’s status is assessed incorrectly.

IR35 change exemption for small businesses

Small businesses are exempt from the new IR35 requirement. For them, assessing employment status remains a task for the employee. HMRC defines a small business as one that does not satisfy two or more of the following criteria:

  • 50 or more employees
  • An annual turnover of more than £10.2m
  • A balance sheet total of more than £5.1m.

The exemption for small businesses will capture many coach operators and some in the bus sector. For those that it does not, it will be necessary to take control of tax and national insurance payments if an individual comes under IR35 as per HMRC’s online tool.

But companies that are outside scope of the change will not escape scrutiny. The pending alteration to IR35 opens a wider discussion about self-employed drivers. While they are not common in the coach and bus sector, they do exist.

Del Haggerty, MD of specialist driver agency DH Team, says that the IR35 change “is potentially a major issue” for some operators. In the past, a large proportion of agency drivers took the limited company route, he adds.

Self-employed drivers come under scrutiny

HMRC’s view has long been that a driver is only self-employed if they own the vehicle and hold an O-Licence. If both are not the case, they are an employee.

IR35 change

That has filtered through to DH Team’s drivers, but Mr Haggerty explains that many of them had founded limited companies to work through without fully understanding the possible consequences. Some found themselves in a difficult position.

DH Team has moved all its drivers to PAYE arrangements.

James Lomax, Solicitor at Backhouse Jones (BHJ), says that while HMRC’s viewis not necessarily reflected by BHJ, the transport law specialist considers that “it would be difficult to argue that a driver who is not an owner-driver would genuinely be self-employed.”

He adds that the change to IR35 does not alter that. In fact, it enhances such a position. The obligation to determine whether an individual is subject to IR35 falling on large- or medium-sized businesses gives traction to the idea of it being difficult for a driver to be legitimately self-employed anywhere in the industry.

Mr Lomax also notes that where an individual is engaged on a self-employed basis, they could later seek to bring a claim against the company at an Employment Tribunal for rights as an employee, such as holiday or sickness pay.

TCs on the case with self-employment

HMRC has engaged TCs to help clamp down on bogus self-employed drivers. They are happy to help; TCs regard the use of non-genuine self-employed drivers as potential issues of unfair competition and repute, which could lead to a Public Inquiry.

Mr Lomax says that if a TC suspects that self-employed drivers are being used, or if a DVSA examiner reports the same, they may add a condition to the O-Licence that all drivers are employed directly.

BHJ advises that all operators should review the status of any self-employed individuals they use, whether engaged directly or through any form of limited company or agency.

Mr Lomax adds that it difficult to say whether the change to IR35 will benefit the operators that it applies to. It takes power away from the driver and provides certainty for the business, but at the same time, the financial burden on that organisation is potentially increased.

Based on the IR35 change, HMRC’s view and the TCs’ readiness to take potentially business-changing action when self-employed drivers come to their attention, it is clear that there can only be one way in which to legitimately engage drivers: As PAYE employees without exception.

routeone comment

While the change to IR35 will not affect smaller operators, it illustrates the importance of correctly identifying the tax status of any individual that carries out work for a business of any size.

HMRC’s view is clear. A driver is self-employed if they own the vehicle. There are various other factors, but an operator can decide based on that alone.

HMRC is not expected to take a hard line on bogus self-employment if is happens very rarely, but if a driver is engaged on such a basis at least two or three times a month, interest will be piqued.

The most important thing to consider about self-employment is how it is now seen by the TCs in terms of fair competition and repute.

Del Haggerty believes that the easiest way for an operator to avoid heartache surrounding self-employed drivers is to avoid them entirely. It is difficult to argue with that.