IR35 rules kick in with onus on operators to check driver status

Operators must check their drivers comply with the new IR35 tax regulations which kicked in this week or risk being fined by HMRC, the RHA is warning.

From 6 April large and medium-sized haulage companies – with net turnover of above £10m or employing 50 or more staff – will no longer be able to hire drivers who work as limited companies. Instead, drivers will need to be employed as a PAYE (pay-as-you-earn) worker, either by the haulier, the agency or via an umbrella company.

The changes make it easier for HMRC to prevent tax evasion by switching the onus from the limited company driver to the end client, who must ensure their agency worker is employed within the rules and will be responsible for any underpayment of tax by the driver

The end client or agency also becomes responsible for deducting the relevant tax and National Insurance contributions at source.

RHA road transport tax consultant Alastair Kendrick warned self-employed drivers to ensure they meet HMRC’s definition of self-employed under IR35.

He said: “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.”

He added 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.

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“You will then be liable to meeting any underpaid income tax and National Insurance together with interest and penalties,” he warned operators.

Kendrick added: “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.”

HMRC has produced the ‘CEST’ tool on their website for operators to determine the status of the driver. Kendrick said: “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.

Operators should also check that agency drivers are provided by agencies that are UK registered.

“If not you are required to operate PAYE and National Insurance on payments you make.” If the agency is UK registered then the responsibility in regard to the driver sits with the agency and not the operator,” Kendrick said.

Further advice from HMRC on IR35 rules can be found here: https://www.gov.uk/government/publications/off-payroll-working-rules-communication-resources/know-the-facts-for-contractors-off-payroll-working-rules-ir35